Haryana govt halts all dealings with IDFC First Bank after ₹590-crore fraud; lender appoints KPMG for forensic audit

After an alleged ₹590-crore fraud involving Haryana government-linked accounts came to light, the state government on Sunday de-empanelled private lenders - IDFC First Bank and AU Small Finance Bank - from undertaking any government business with immediate effect.

In a circular issued by the Finance Department, the government said no funds will be parked, deposited, invested or transacted through the two lenders until further orders. All departments, boards and state-run organisations have been directed to immediately transfer existing balances and close accounts maintained with these banks.

"IDFC First Bank and AU Small Finance Bank are hereby de-empanelled for government business in Haryana with immediate effect till further orders," the notice read, according to a circular issued by the Finance Department.

The action follows after IDFC First Bank informed exchanges that it had identified a suspected fraud of around ₹590 crore in certain Haryana government-related accounts operated through its Chandigarh branch.

"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, potentially involving other individuals/entities/counterparties," it said in a BSE filing.

"The aggregate amount under reconciliation across the identified accounts at the abovementioned branch is approximately ₹590 crore," it added.

Bank appoints KPMG for forensic audit

IDFC First Bank disclosed in an exchange filing that it has appointed KPMG to conduct an independent forensic audit after detecting alleged unauthorised and fraudulent transactions at its Chandigarh branch involving Haryana government-linked accounts.

“The bank is in the process of appointing an independent external agency to conduct a forensic audit. In furtherance of the same, we wish to inform you that the Bank has appointed KPMG to initiate an independent forensic audit in this matter,” the release noted.

In the regulatory filing, the bank said the irregularities came to light following a request from a department of the Government of Haryana seeking closure of its account and transfer of funds to another bank. During the process, discrepancies were observed between the amount requested and the balance reflected in the account.

Subsequently, from February 18 onwards, other Haryana government entities approached the bank regarding their respective accounts, where further differences were noticed between the balances recorded by the bank and those communicated by the account holders, the release added.

Based on a preliminary internal review, the bank said the issue appears confined to a specific group of government-linked accounts operated through the Chandigarh branch and does not extend to other customers of the branch.

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

As per the bank, a meeting of the special committee of the board for monitoring and follow-up of cases of frauds (SCBMF) was held on February 20, followed by meetings of the audit committee and the board of directors on February 21 to review the matter.

The statutory auditors have been informed, and a police complaint has been filed. The bank also said it has sent recall requests to certain beneficiary banks to mark liens on balances in suspicious accounts.

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