A Rs 590 crore fraud at IDFC First Bank’s Chandigarh branch has sent shockwaves through Dalal Street, erasing over Rs 14,000 crore in market capitalisation after the bank’s shares crashed 20% and hit the lower circuit on Monday.
The irregularities came to light after entities linked to the Haryana state government flagged discrepancies between actual bank balances and amounts reflected in account records. The suspected misappropriation exceeds the bank’s entire third-quarter net profit of Rs 503 crore a fact that rattled investors and triggered the sharp sell-off.
What Happened at The IDFC First Bank fraud?
IDFC First Bank confirmed that staff at its Chandigarh branch carried out unauthorised transactions in accounts associated with the Haryana state government, resulting in a deposit mismatch of approximately Rs 590 crore. An internal investigation found the irregularities confined to a specific set of Haryana government-related accounts at that branch.
Four branch officials suspected of involvement have been suspended. The bank has filed a police complaint, notified its statutory auditors, and appointed KPMG to conduct an independent forensic audit.
Managing Director and CEO V. Vaidyanathan moved to contain the reputational damage, maintaining that the incident was isolated and rooted in internal collusion rather than any systemic weakness. “The bank has necessary controls in place, including maker, checker and authoriser for clearing cheques or debit instructions from the department,” he told ET. “We have been in operation for over 10 years and have rolled out over 1,000 branches and have had no such incident before.”
He added: “Prima facie third-party entities are involved in this compromise… The issue is specific to one branch and one client group and is thus an isolated instance. There is no system-level issue.”
The bank convened a meeting of its Board’s Special Committee for Monitoring Fraud Cases on February 20, followed by sessions of the full Audit Committee and the Board on February 21. A regulatory filing submitted in the early hours confirmed the bank had informed the banking regulator and lodged a police complaint. Recall notices have also been issued to beneficiary banks, requesting them to lien-mark funds in accounts flagged as suspicious a step the bank hopes will reduce the eventual financial hit.
The fallout has extended beyond financials. The Haryana government removed IDFC First Bank from its empanelled list, alongside AU Small Finance Bank, and directed state departments to shut their accounts with both institutions.
Stock Impact and Analyst Views
Monday’s crash pulled the stock to Rs 70, nearly 20% below its 52-week high of Rs 87 touched in early January. The steep correction has dented a valuation multiple that had steadily climbed over the past three years, with the bank’s price-to-book ratio rising from around one to nearly two, backed by improving asset quality, a stronger net interest margin lifted to roughly 6% from below 2% seven years ago and a strategic pivot toward retail lending.
Analysts are divided on the path forward. UBS estimates the fraud amounts to nearly 22% of the bank’s projected FY26 profit after tax, while noting the impact on capital would likely be limited to around 1% of net worth. Morgan Stanley assessed the potential drag on FY26 profit before tax at approximately 20%.
Investec kept its Buy rating but trimmed its target price to Rs 92 from Rs 105, noting that the ultimate financial effect depends on investigation outcomes, recoveries, and verification of claims. Nomura analyst Ankit Bihani said recovery through liens on beneficiary accounts, liability of involved parties, and the progress of legal proceedings would determine the final impact. He also raised concerns over governance standards and branch-level oversight, warning that the stock could remain under pressure until the forensic audit concludes. Given the bank’s retail deposit-driven model, he emphasised that reputation management is critical.
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Jefferies called on the bank to tighten operational safeguards and confirm that the irregularities are limited to the identified accounts and have not affected other customers.
Market analysts cautioned that previous episodes involving lenders such as RBL Bank and IndusInd Bank show that institutions facing comparable setbacks have struggled to reclaim lost market ground and restore premium valuations a risk investors should weigh carefully despite the potential for bargain-hunting at current levels.
(Disclaimer: Views and recommendations on stocks expressed by analysts cited in this article are their own and do not represent the editorial position of this publication.)
