IDFC First Bank Reports Rs 590 Crore Fraud in Haryana Government Accounts
On a day when its stock price plummeted by 16%, IDFC First Bank disclosed a significant fraud amounting to Rs 590 crore, linked to Haryana government accounts. The bank's CEO, V Vaidyanathan, addressed the issue in a conference call, emphasizing that the incident is isolated and confined to a single branch in Chandigarh. Despite the financial hit, Vaidyanathan assured stakeholders that the bank will remain profitable, highlighting robust internal controls and ongoing recovery efforts.
Employee Collusion and Forged Cheques Trigger Fraud
The fraud was traced to employee collusion at the Chandigarh branch, where forged cheques were cleared, leading to unauthorized fund transfers to beneficiary accounts outside the bank. Vaidyanathan clarified that this was a physical transaction, not a digital breach, describing it as "the oldest kind of fraud probably known to banking." He stated, "This looks to us on the basis of the work we've done clearly a case of an employee fraud." The bank has suspended suspected staff and filed police complaints to initiate legal action.
Forensic Audit and Safeguards in Place
In response to the incident, IDFC First Bank has appointed KPMG to conduct a forensic audit, expected to take four to five weeks to complete. Vaidyanathan noted that the bank holds employee-fraud cover of up to Rs 35 crore. Despite having safeguards such as maker-checker-authoriser controls, positive pay for cheques, high-value checks, SMS alerts, and monthly statements, employee collusion circumvented these measures. "The issue in this case is that many of these people connived in making it happen," he explained. To prevent future occurrences, the bank will now require pre-approval for clearing all high-value cheques.
Impact on Profitability and Recovery Efforts
Vaidyanathan acknowledged that the bank will take provisions for the fraud but reiterated confidence in profitability. "Despite this hit, if we were to take one, we still expect to be profitable," he said. The bank has begun recovery and lien-marking processes across its system. Separately, AU Small Finance Bank reported scrutiny of transactions involving a Haryana government department, identifying 14 transactions totaling Rs 47 crore transferred from a government account to a customer account. Its internal review found no fraudulent activity by the bank, but certain employees were placed off-duty for a fair review.
Government Response and Future Actions
In the Haryana Assembly, Chief Minister Nayab Singh Saini assured that the money involved in the IDFC First Bank fraud case will "definitely come back," with appropriate action against the guilty. This statement underscores the government's commitment to addressing financial misconduct. As IDFC First Bank navigates this challenge, its focus remains on strengthening internal protocols and ensuring transparency through the forensic audit, aiming to restore trust and maintain financial stability in the wake of this isolated incident.
