Shares of India’s IDFC First Bank declined sharply on February 23 after the lender disclosed a fraud involving accounts linked to the Haryana government, triggering investor concerns and regulatory scrutiny.
The private sector lender’s stock fell 20% to hit a lower circuit at ₹66.80. At the time of writing, the shares were trading at ₹69.53.
The bank said it had reported the matter to the banking regulator and filed a police complaint.
Brokerage estimates suggested the amount under reconciliation equals roughly 0.9% of the bank’s net worth and about 20% of its fiscal 2026 pre-tax profit.
UBS estimated the suspected amount at about 22% of fiscal 2026 profit after tax but noted the capital impact may be limited to about 1% of net worth.
Morgan Stanley similarly pegged the potential hit to fiscal 2026 profit before tax at roughly 20%.
Fraud linked to government accounts
The bank said the issue stemmed from activities at a single branch in Chandigarh involving accounts belonging to Haryana government entities.
“Prima facie, unauthorised and fraudulent activities have been carried out by certain employees at a particular branch in Chandigarh in a specific set of Haryana state government accounts and potentially involving other individuals/entities/counterparties,” the IDFC First Bank filing said.
The lender estimated the fraud size at ₹590 crore, adding that a “reconciliation exercise” would determine the final amount after validation of claims and recoveries.
According to official details, discrepancies surfaced when a government department requested closure and a balance transfer of an account.
Authorities later observed similar issues across other Haryana government-linked accounts beginning February 18.
IDFC First Bank said a preliminary internal review indicated the matter is “confined to a specific group of government-linked accounts within Haryana Government operated through the said branch in Chandigarh” and does not extend to other customers of the branch.
Four bank officials have been suspended pending investigation.
The bank said it will pursue disciplinary, civil, and criminal action against responsible employees and external individuals.
It has also sent recall requests to beneficiary banks to lien-mark balances in suspicious accounts and will appoint an independent external agency to conduct a forensic audit.
Government action and regulatory response
Following the disclosure, the Haryana government de-empanelled both IDFC First Bank and AU Small Finance Bank from government business with immediate effect.
“IDFC First Bank and AU Small Finance Bank are hereby de-empanelled for government business in Haryana with immediate effect till further orders,” a Finance Department circular said.
The circular stated that no government funds will be parked, deposited, invested, or transacted through the institutions.
Statutory auditors have been informed, and the bank placed the matter before a “Special Committee of the Board for Monitoring and Follow-up of Cases of Frauds” on February 20.
The audit committee and board were informed the following day.
Jefferies said the lender would need to reassure investors that the issue was not systemic and had not spread to other clients.
Financial impact and recent performance
Despite the immediate market reaction, analysts suggested the broader capital impact may remain limited.
UBS indicated the effect on net worth could be about 1%, though profit implications for fiscal 2026 may be significant.
Prior to the disclosure, the bank had reported strong operating performance.
In the quarter ended December 31, 2025, deposits rose 24%, including a 33% increase in the share of low-cost current and savings accounts.
Net profit increased 48% year-on-year to Rs 503 crore for the October–December period.
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