After Rs 590 crore fraud, Haryana govt stops government dealings with IDFC First Bank

IDFC First Bank

• Haryana bans IDFC First, AU Small Finance Bank for govt business
• Rs 590 crore fraud detected in Haryana govt-linked IDFC First accounts
• All govt funds to be moved, accounts closed with these two banks

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The Haryana government on Sunday has de-empanelled IDFC First Bank and AU Small Finance Bank for government business with immediate effect, following the disclosure of an alleged Rs 590-crore fraud involving accounts linked to the state government.

No government funds will be parked, deposited, invested or transacted through these institutions, it said. "IDFC First Bank and AU Small Finance Bank are hereby de-empanelled for government business in Haryana with immediate effect till further orders," according to a circular issued by the Finance Department.

In an official circular, the state government said the two banks have been barred from handling government business in Haryana until further orders. No government funds will be parked, deposited, invested or transacted through these banks going forward. All departments and organisations have been directed to immediately transfer balances and close accounts maintained with them.

The Finance Department also flagged lapses in adherence to fixed deposit instructions. It noted that in several cases, funds meant to be placed in flexible deposits or higher-interest fixed deposit instruments were allegedly retained in savings accounts, resulting in lower returns and financial loss to the government.

On Monday,  shares of IDFC First Bank slumped as much as 20%, after the lender flagged suspected fraud of 5.9 billion rupees ($65 million), raising concerns over internal controls and earnings impact.

The stock was trading 16.8% lower at 69.45 rupees as of 10:22 a.m. IST, its lowest since October 2025, and was set for its worst session in six years.

Departments, corporations, boards and PSUs have been directed to strictly follow approved deposit terms, regularly verify compliance by banks, conduct monthly reconciliations of fixed deposits and related accounts, and report discrepancies to the Finance Department. All reconciliations must be completed by March 31, 2026, with a certified compliance report to be submitted by April 4, 2026.

The development comes after IDFC First Bank disclosed in a regulatory filing that it has identified a fraud of approximately Rs 590 crore involving certain Haryana government-linked accounts operated through a branch in Chandigarh.

"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 bank said in its filing.

The lender added that the fraud size is currently estimated at Rs 590 crore, and a "reconciliation exercise" will determine the final amount based on receipt of further information, validation of claims, and recoveries of any nature.

Providing details, the bank said a Haryana government department had requested closure and balance transfer of its accounts to another bank. "In the process, certain discrepancies were observed in the amount mentioned vis-a -vis the balance in the account," it said, adding that similar issues surfaced in other Haryana government-linked accounts from February 18 onwards.

IDFC First Bank clarified that a preliminary internal review found the matter is "confined to a specific group of government-linked accounts within Haryana Government" operated through the Chandigarh branch and does not extend to other customers of that branch.

"The aggregate amount under reconciliation across the identified accounts at the abovementioned Branch is approximately Rs 590 crore," the bank disclosed.

Four bank officials have been suspended pending investigation. The bank said it will pursue strict disciplinary, civil and criminal action against employees and external individuals found responsible.

As part of recovery efforts, IDFC First Bank has issued a "recall request" to certain beneficiary banks to "lien mark balance" in suspicious accounts. Statutory auditors have been informed, and an independent external agency will conduct a forensic audit.

The matter was placed before a "Special Committee of the Board for Monitoring and Follow-up of Cases of Frauds" on February 20, with the audit committee and board being apprised a day later.

Shares of IDFC First Bank had closed 0.72 per cent higher at Rs 83.56 on the BSE on Friday, compared with a 0.38 per cent gain in the benchmark index.