IDFC First Bank Pays ₹583 Crore to Haryana Government Amid Fraud Investigation
IDFC First Bank's share price rose 3% on Tuesday, February 24, after the lender disclosed it had paid ₹583 crore to the Haryana government, despite ongoing investigations into a ₹590 crore fraud at its Chandigarh branch. The payment came just one day after the bank's shares plummeted over 16% following the fraud revelation, highlighting investor uncertainty about the institution's governance and financial stability.
The bank's decision to settle the claimed amount while the investigation continues underscores the delicate balance between maintaining government relationships and addressing internal control failures in India's banking sector. The Haryana government has subsequently de-empanelled both IDFC First Bank and AU Small Finance Bank from accepting fresh government deposits until further notice.
Background and Context
The fraud came to light when a Haryana government department requested the closure of its account and transfer of funds to another bank. Internal scrutiny revealed discrepancies across multiple government-linked accounts maintained at the Chandigarh branch, exposing what bank officials described as "unauthorised and fraudulent transactions" potentially involving employees in connivance with external parties.
According to regulatory filings, the total discrepancy amounted to ₹590 crore, with ₹490 crore identified through reconciliation and an additional ₹100 crore estimated based on preliminary findings. The incident has prompted discussions about operational risk management in India's banking sector, particularly regarding government account management and branch-level oversight mechanisms.
Key Figures and Entities
Managing Director and Chief Executive Officer V. Vaidyanathan characterized the episode as "a clear case of employee fraud" during a conference call with analysts. The bank has suspended four officials pending investigation and has engaged KPMG to conduct a forensic audit expected to take four to five weeks.
The matter was presented before the Special Committee of the Board for Monitoring and Follow-up of Cases of Fraud on February 20, 2026. Police complaints have been filed, and law enforcement agencies have been engaged as the bank initiates recovery and lien-marking actions across the banking system, according to official disclosures.
Legal and Financial Mechanisms
The fraud represents approximately 1.25% of the bank's net worth and 0.2% of total deposits, based on calculations from publicly available financial statements. Despite this relatively small percentage, the incident highlights vulnerabilities in internal control systems for high-value government accounts.
IDFC First Bank reported maintaining strong financial metrics, with gross non-performing assets at 1.69% and net NPA at 0.53% as of December 31, 2025. The bank's capital adequacy ratio stood at 16.22%, providing what analysts describe as adequate buffers for growth and potential losses related to the fraud incident.
Market Reaction and Regulatory Implications
Brokerage firms have responded by cutting price targets but generally maintaining constructive ratings on the stock. Axis Direct reiterated its BUY recommendation but reduced its target price to ₹87 per share, while Emkay retained an ADD rating with a reduced target of ₹80. Both firms characterized the incident as operational rather than structural.
The incident may prompt regulatory scrutiny of internal controls at other Indian banks, particularly regarding government account management protocols. According to analysts, the case could accelerate ongoing discussions about strengthening branch-level oversight and implementing more sophisticated fraud detection systems in India's banking sector.
Sources
This report draws on regulatory filings from IDFC First Bank, statements from the Haryana government, analyst reports from Axis Direct and Emkay Global Financial Services, and financial disclosure documents available through the bank's investor relations portal between 2025 and 2026.
