Haryana Vigilance Bureau Arrests Four in IDFC First Bank Fraud Case

Arrests Made in Major Fraud Investigation

The Haryana State Vigilance and Anti-Corruption Bureau has apprehended four individuals linked to a significant fraud case involving IDFC First Bank, amounting to Rs 590 crore, as confirmed by officials on Wednesday. Among those arrested are two former employees of the bank and two private individuals associated with a partnership firm. These arrests occurred late Tuesday as the investigation gained momentum.

This action follows the bank's decision to reimburse nearly Rs 583 crore, covering both principal and interest, to the affected departments of the Haryana government. The fraud was first revealed on Sunday when IDFC First Bank announced it had uncovered a Rs 590-crore scam involving both employees and external parties connected to government accounts.

Authorities had previously filed a First Information Report (FIR), and the Haryana government established a committee to investigate the alleged irregularities.

Bank's Statement

IDFC First Bank reported that unauthorized transactions occurred at its Chandigarh branch, leading to a deposit discrepancy of approximately Rs 590 crore, which surpasses the bank's net profit of Rs 503 crore for the third quarter. An internal review revealed that these irregularities were limited to a specific set of government-related accounts at that branch. Following this, the bank lodged a police complaint, notified its statutory auditors, and engaged KPMG for an independent forensic audit.

V. Vaidyanathan, the Managing Director and CEO, indicated that the issue seems to be confined to internal collusion rather than a widespread systemic failure. He reassured that the bank's control systems, which include checks and authorizations for transaction approvals, are still operational. Preliminary findings suggest third-party involvement, and Vaidyanathan emphasized that the incident appears to be isolated to one branch and a specific group of clients, with no indication of a broader issue.

Market Reaction

The revelation of the fraud led to a significant market response, wiping out over Rs 14,000 crore in investor wealth. On Monday, shares of IDFC First Bank hit the lower circuit limit as the extent of the alleged fraud became apparent. The stock, which had previously peaked at Rs 87 in early January, fell to around Rs 70, marking a nearly 20% decline from its highest point. By Wednesday, the shares continued to trade lower, slightly decreasing to approximately Rs 70.43.

Regulatory and State Actions

The bank's Special Committee for Monitoring Fraud Cases convened on February 20, followed by meetings of the Audit Committee and the Board the next day. In its regulatory disclosures, the bank stated that it had informed the banking regulator, filed a police complaint, and issued recall notices to beneficiary banks, requesting lien marking on accounts identified as suspicious to mitigate potential losses. In response to the situation, the Haryana government has removed IDFC First Bank from its list of empanelled banks, along with AU Small Finance Bank, instructing departments to close their accounts with both institutions as a precautionary measure.