IDFC First Bank, AU Small Finance Bank lose ₹16,396 cr in m-cap after ₹590-cr fraud disclosure; stocks fall up to 20%

Shares of IDFC First Bank and AU Small Finance Bank witnessed sharp selling pressure on Monday, collectively eroding ₹16,396 crore in market capitalisation, after the Haryana government de-empanelled the two lenders from undertaking government business following an alleged ₹590-crore fraud linked to certain state-related accounts.

The sharp sell-off was triggered after IDFC First Bank disclosed an alleged fraud of ₹590 crore involving certain Haryana government-related accounts operated through its Chandigarh branch. Following the disclosure, the Haryana government de-empanelled both IDFC First Bank and AU Small Finance Bank with immediate effect, barring them from handling any government business.

Reacting to the development, shares of IDFC First Bank plunged as much as 20% during intraday trade to hit a low of ₹66.85 on the BSE. At the time of reporting, the stock was trading 15.90% lower at ₹70.27. The rout wiped out ₹11,428 crore from its market valuation, taking its market capitalisation down to ₹60,426.52 crore.

The counter also witnessed a surge in trading activity, with around 2.9 lakh shares changing hands on the BSE, significantly higher than the two-week average volume of 1.58 lakh shares.

Similarly, shares of AU Small Finance Bank fell up to 7.6% to ₹950.50 apiece on the BSE. The decline translated into an erosion of ₹5,208 crore in investor wealth, with the lender’s market capitalisation slipping to ₹71,739.64 crore from ₹76,948 crore in the previous session.

KPMG appointed to conduct independent forensic audit

In an exchange filing on Sunday, 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. The bank said it had initiated the process of appointing an external agency and has now mandated KPMG to undertake the forensic review.

The discrepancies first surfaced after a department of the Government of Haryana requested closure of its account and transfer of funds to another bank. During the process, the bank identified a mismatch between the amount sought for transfer and the balance reflected in its records.

Based on a preliminary internal assessment, the bank said the issue appears to be restricted to a specific set of government-linked accounts handled by the Chandigarh branch and does not impact other customers.

The lender has suspended four officials suspected to be involved, pending further investigation, and said it would initiate strict disciplinary, civil and criminal proceedings against any employees or external parties found culpable.

A meeting of the special committee of the board for monitoring and follow-up of cases of frauds (SCBMF) was convened on February 20, followed by deliberations of the audit committee and the board of directors on February 21 to review the developments, it said.

As per the release, the statutory auditors have been informed, a police complaint has been lodged, and recall requests have been issued to certain beneficiary banks to place liens on balances in accounts identified as suspicious.

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