Fraud could hit IDFC First where it hurts the most

Subscribe to enjoy similar stories. IDFC First Bank’s investors are shaken, pulling the stock down as much as 20% following reports of a fraud at the fast-growing lender. What began as a disappointing de-empanelment of IDFC and AU Small Finance Bank by the Haryana government—affecting 0.5% of their deposits—quickly evolved into something far more unsettling.

Both banks were accused of retaining funds in low-yielding accounts despite fixed deposit instructions. AU Small Finance’s management has said there is no indication of financial impact or fraudulent activity at this stage. At IDFC First, however, employees allegedly executed unauthorized cheque-based transactions worth ₹590 crore from government accounts.

For context, the bank’s profit after tax for Q3FY26 stood at about ₹500 crore. This suggests a potential 20-25% hit to FY26 profit. IDFC First has moved swiftly on optics and process.

Four employees have been suspended, statutory auditors informed, a police complaint registered, and an independent forensic audit by KPMG has been commissioned. The bank is also exploring temporarily freezing beneficiary accounts. As such frauds typically involve layered transactions across multiple banks and accounts, downstream freezes could help limit losses.

However, even assuming recoveries over time—along with potential liabilities of other entities involved and ₹35 crore of employee dishonesty insurance-deposit-linked frauds usually require upfront provisioning, with recoveries being back-ended. Initial investigations indicate the fraud is contained within the Chandigarh branch and limited to a set of government-linked accounts, suggesting no systemic issue for now. Yet, a fraud of this magnitude—enabled by collusion among only