IDFC First slumps on fraud

IDFC First Bank shares were the top loser on the BSE in early trade today, sliding 17.62% to Rs. 68.84 after the lender disclosed unauthorised and fraudulent activities linked to a set of Haryana government accounts. The stock opened at Rs. 75.21 and hit an intraday low of Rs. 66.85, with volumes spiking to 161.20 lakh shares and turnover of about Rs. 109.85 crore, as the market priced in near-term uncertainty.

In an exchange filing, the bank said “prima facie” the misconduct was carried out by certain employees at a particular branch in Chandigarh involving a specific group of Haryana state government-linked accounts, potentially involving other individuals/entities/counterparties. The issue came to light after a Haryana government department sought closure and balance transfer to another bank, during which discrepancies were observed between the amount mentioned and the account balance; similar issues were subsequently flagged in other Haryana government entity accounts from February 18 onwards. Brokerages estimate the amount under reconciliation at about 0.9% of net worth and roughly 20% of FY26 pre-tax profit, suggesting the financial hit may be manageable, but the control failure is material for investor confidence.

Sentiment was further hit after the Haryana Finance Department issued a circular de-empanelling IDFC First Bank and AU Small Finance Bank for government business with immediate effect until further orders, stating no government funds will be parked, deposited, invested or transacted through these institutions. While the order is state-specific, such de-empanelment typically raises broader questions around the bank’s ability to retain and win government-linked transactional relationships and low-cost deposits, at least in the near term.

The bank said the preliminary internal review indicates the matter is confined to the identified government-linked accounts and does not extend to other customers of the Chandigarh branch. Four officials have been suspended pending investigation, statutory auditors have been informed, and the bank will conduct an independent forensic audit through an external agency. As an immediate recovery step, IDFC First Bank has sent recall requests to certain beneficiary banks to lien mark balances in suspicious accounts.

Going forward, investor focus will be on three variables: the final reconciled quantum, the speed and success of recovery (including lien marking and fund recall), and the forensic findings on how the controls were bypassed and what remediation is implemented. The stock’s next leg will likely be driven less by today’s headline and more by the clarity the bank provides on containment and recovery, alongside whether the Haryana action remains temporary or triggers similar steps elsewhere.