Reserve Bank of India Governor Sanjay Malhotra has assured that the Rs 590-crore fraud at IDFC First Bank is not a “systemic issue” while stating that the central bank is keeping a watch on the developments around it.

IDFC First Bank had earlier flagged the fraud committed by certain employees and others at a Chandigarh branch involving accounts linked to the Haryana government.

"We are watching the development...there is no systemic issue over here," Malhotra said in a press briefing on Monday, following the post-Budget meeting of the RBI’s board of directors with Finance Minister Nirmala Sitharaman.

Based on a preliminary internal review, IDFC First Bank had said that the fraud "is confined to a specific group of government-linked accounts within Haryana government" operated through the Chandigarh branch".

On Saturday, IDFC First Bank informed exchanges that it had received a request from a Haryana government department for the closure of its account at a Chandigarh branch and transfer of funds to another bank.

Acting swiftly, IDFC First Bank suspended four employees suspected of fraudulent activities. The lender clarified it has so far not come across the involvement of senior management.

"This is basically a case where debit instructions have come supposedly from the client, which our people -- which clearly, to us, indicate the fraudulent activity -- have passed the entries and have transferred the money to certain parties outside the bank from the client's account," IDFC First Bank MD and CEO V Vaidyanathan said at a conference call with investors.

"So, this looks to us, on the basis of the work we've done, clearly, a case of employee fraud. And also our internal fingerprints and our details are quite clear that external parties are also involved here," he added.

The bank clarified that there was no system error and it was a fraud which happened with the concurrence of some employees and external parties through forged physical cheque transactions.

“It was a physical and not a digital transaction,” Vaidyanathan told analysts.