After flagging a Rs 590-crore fraud at a Chandigarh branch involving accounts linked to the Haryana government, IDFC First Bank has taken swift action which includes appointment of KPMG to conduct forensic audit.

The private sector lender has suspended four suspected officials pending investigation and filed a complaint with the police authorities while acknowledging that the fraudulent activities could potentially have the involvement of other individuals and entities. 

"The bank will pursue strict disciplinary, civil and criminal action against the employees and other external individuals responsible, in accordance with applicable law," the lender said in a regulatory filing.

The lender has also appointed KPMG as the independent external agency to conduct a forensic audit into the suspected irregularities. It is expected to examine potential involvement of external agencies.

Further, IDFC First Bank said it has “sent recall request to certain beneficiary banks to lien mark balance in suspicious accounts held in these banks".

The bank has informed its statutory auditors and said it will extend full co-operation to investigating agencies.  

A day before making the public disclosure, the bank on 20 February convened the Special Committee of the Board for Monitoring and Follow-up of Cases of Frauds (SCBMF). The audit committee and board of directors met the next day.

The fraudulent activities by certain employees at a specific branch in Chandigarh first came into light after the bank received a request from a department of the Haryana government for closure of its account and transfer of funds to another bank. During the process, discrepancies were observed between the amount mentioned and the balance available in the account.

The other departments of the Haryana government also engaged with the bank from 18 February onwards regarding their accounts. Similar mis-matches were found between the balances on record and what the government entities believed they held.

Based on a preliminary internal review, the lender believes the fraudulent activities are confined to a specific group of government-linked accounts operated through the Chandigarh branch and does not extend to other customers of the branch.

As per current estimates, the fraud size is around Rs 590 crore but the bank said a "reconciliation exercise" would determine the final amount based on receipt of further information, validation of claims and recoveries of any nature.