IDFC First Bank Fraud: A Rs 590-crore fraud at IDFC First Bank’s Chandigarh branch resulted in a significant loss of over Rs 14,000 crore of investors’ assets. The fraud came to light after entities associated with the Haryana government reported discrepancies between the actual bank balances and the amounts reflected in account records. The result: IDFC First Bank’s stock price plunged 20% on Monday, sending it into low territory after it emerged that the embezzlement allegations exceeded the bank’s entire quarterly profit. The sharp decline in IDFC First Bank’s stock price has affected its valuation multiple. Analysts say a sharp correction could attract bargain hunters, but investors need to be wary of potential valuation traps. Previous cases involving lenders such as RBL Bank and IndusInd Bank suggest that institutions facing similar setbacks will find it difficult to recover lost market base and restore premium valuations. Over the past three years, IDFC First Bank’s price-to-book multiple has steadily improved from about 1 to almost 2, supported by improved asset quality. The company also worked to strengthen its net interest margin, increasing it to about 6% from less than 2% seven years ago, primarily by shifting its focus to retail lending and reducing its corporate exposure. This strategic shift has attracted value-minded investors and provided momentum for the stock in recent years. The stock reached a 52-week high of $87 in the first week of January and remained around that level for several weeks.This trend reversed on Monday, with the stock price falling to ₹70 compared to its previous close. At this level, the stock was trading nearly 20% below its 52-week high.
What is the IDFC First Bank fraud case?
- IDFC First Bank has announced that its Chandigarh branch staff carried out fraudulent transactions in Haryana government-related accounts, resulting in deposit discrepancies of around Rs 590 crore.
- The scale of the alleged fraud is larger than the bank’s third quarter net profit of 530 million rupees.
- An initial internal investigation revealed that the fraud was confined to a specific Haryana government-related account managed at the bank’s Chandigarh branch.
- Four branch employees suspected of being involved were suspended. The bank filed a complaint with the police, notified the statutory auditor and asked KPMG to conduct an independent forensic investigation.
- V. Vaidyanathan, managing director and CEO of IDFC First Bank, sought to limit the impact, arguing that the lapses were limited in scope and resulted from internal collusion rather than broader structural weaknesses.
- “The bank has put in place necessary controls such as makers, checkers and approvers for clearing checks and debit instructions from departments,” Vaidyanathan told ET. “Our company has been operating for more than 10 years and has more than 1,000 branches, and we have never had such an incident before.” He added, “Prima facie, a third party is involved in this breach…This issue is specific to one branch and one group of clients and is therefore an isolated incident. There is no system-level issue.”
- A meeting of the Board of Directors’ Special Committee for Oversight of Fraud Incidents was convened on February 20th, followed by a meeting of the entire Audit Committee and the Board of Directors on February 21st.
- The bank said in a regulatory filing early in the morning that it had notified banking regulators about the incident and filed a police complaint.
- The bank also issued recall notices to beneficiary banks requiring them to place liens on funds held in suspicious accounts. This step can help reduce the ultimate financial impact.
- Beyond the immediate economic impact, the episode led to reputational damage. The Haryana government has removed IDFC First Bank along with AU Small Finance Bank from the authorized list and directed the state authorities to close the accounts of both institutions.
What is the outlook for IDFC Bank stock?
UBS estimates that amount is equivalent to nearly 22% of IDFC First Bank’s expected profit after tax in FY2026, but notes that the impact on equity is likely to be around 1% of net assets. Meanwhile, Morgan Stanley assessed the potential impact on FY26 pre-tax profits to be around 20%.Investec maintained a buy recommendation on the stock, but lowered its price target to 92 rupees from 105 rupees. It noted that the ultimate financial impact will depend on the outcome of the investigation, the extent of recovery and verification of the claims.Nomura analyst Ankit Bihani said the ultimate impact on the bank’s financial performance will depend on how much it can recover through liens placed on beneficiary accounts held by other banks, the debts of related parties and the progress of legal recovery proceedings.He also flagged issues related to governance standards and branch-level oversight. He said maintaining IDFC First Bank’s reputation is important given its retail deposit-centric business model. The stock could remain under pressure until the audit is completed.Mr Jefferies said lenders needed to strengthen operational security measures and ensure that fraud was confined to identified accounts and did not impact other customers.(Disclaimer: Expert recommendations and opinions on the stock market, other asset classes, or personal financial management tips are their own. These opinions do not represent the views of Times of India)