IDFC First Bank Maintains Profit Outlook Despite Major Fraud Provision
MUMBAI: IDFC First Bank has announced it will remain profitable even after setting aside provisions for a significant fraud amounting to Rs 590 crore. The fraudulent activities were detected in accounts linked to the Haryana government, originating from the bank's Chandigarh branch due to employee collusion.
Market Reaction and Financial Impact
Following the disclosure of the fraud on Saturday, the bank's shares plummeted by 16% on Monday. Chief Executive V. Vaidyanathan addressed concerns during a conference call, revealing that the total impact is estimated at Rs 590 crore. This includes Rs 490 crore identified through balance confirmations and an additional Rs 100 crore buffer added proactively by the bank after an internal review.
Vaidyanathan emphasized that this figure represents the outer estimate for now, stating, "We have put out this number as we could best assess at this point of time. But we feel that the number is broadly appropriate to the current situation." He added that the Rs 100 crore buffer was a deliberate measure to avoid postponing disclosures or causing market uncertainty with incremental news.
Nature of the Fraud and Investigation
The suspected fraud involved forged cheque transactions that were cleared at the Chandigarh branch. Vaidyanathan clarified that this was not a digital breach but a physical transaction, describing it as "the oldest kind of fraud probably known to banking." Debit instructions were purportedly issued by the client and processed at the branch level, with funds transferred to suspicious beneficiary accounts outside the bank.
Vaidyanathan explained, "This looks to us on the basis of the work we've done clearly a case of an employee fraud. And it also our internal fingerprints and our details are quite clear that external parties are also involved here." He noted that other banks are cooperating in recovery efforts.
Internal Controls and Employee Involvement
Despite having robust controls in place, including maker-checker-authoriser protocols, positive pay systems, high-value cheque monitoring, SMS alerts, and monthly statements, collusion among employees bypassed these safeguards. Vaidyanathan stated, "The issue in this case is that many of these people connived in making it happen." All suspected employees have been suspended pending further investigation.
Forensic Audit and Recovery Actions
IDFC First Bank has appointed KPMG to conduct a forensic audit, expected to conclude within four to five weeks. Vaidyanathan said, "We have and appointed a forensic auditor for this KPMG and we will expect them to move in great diligence and move very fast." The bank has also filed police complaints and initiated recovery and lien-marking procedures across the financial system, vowing to spare no one involved.
Financial Provisions and Profitability Assurance
The bank holds an employee-fraud insurance cover of up to Rs 35 crore. Vaidyanathan confirmed that provisions will be made for the fraud but assured stakeholders of continued profitability. He said, "Please assume that we will take certain provisions for this. Despite this hit, if we were to take one, we still expect to be profitable." This incident is described as an isolated event confined to one branch and a limited set of Haryana government-linked accounts, with no broader digital security implications.
