RBI closely monitoring ₹590-crore IDFC First Bank fraud; no systemic risk, says Governor Malhotra

The Reserve Bank of India (RBI) is closely monitoring developments related to the ₹590-crore fraud at IDFC First Bank, and there is no systemic concern, Governor Sanjay Malhotra said on Monday. 

IDFC First Bank on Sunday disclosed a ₹590-crore fraud allegedly committed by certain employees and others at a specific branch in Chandigarh, involving a particular set of Government of Haryana accounts. 

“We are watching the development; there is no systemic issue,” Malhotra told reporters at a press briefing following the customary post-Budget address by Finance Minister  Nirmala Sitharaman  to the RBI’s Central Board of Directors. 

The bank said the fraud is “confined to a specific group of government-linked accounts within the Haryana government operated through the said branch in Chandigarh” and stressed that it does not extend to other customers of the Chandigarh branch. 

Haryana de-empanelled IDFC First Bank and AU Small Finance Bank 

Meanwhile, following the alleged fraud involving Haryana government-linked accounts, the Haryana 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 state government said no funds would 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. 

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

KPMG to conduct an independent forensic audit: IDFC First Bank 

In a separate exchange filing, IDFC First Bank said 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. 

Shares of AU Small Finance Bank fell as much as 6.18% to ₹965.30, taking its market capitalisation to ₹72,547 crore. Shares of IDFC First Bank tumbled up to 10% in opening trade on Monday after the fraud disclosure.