IDFC First Bank managing director and CEO V Vaidyanathan has said that the Rs 590 crore fraud was the oldest kind known to banking, involving cheque forgery and done with the concurrence of some staff people with external parties. There was no issue with the technology backbone of the bank and it did not spring from digital transaction or any system error.

In a conference call with analysts, Vaidyanathan said the bank is all out to ‘get to the bottom of it’ and ‘no one will be spared’. This operational issue, the first in a decade, is an isolated case and is confined to one client and one branch in Chandigarh. 

“We will move diligently and very fast… we will scan every nook and corner to see if any employees are involved,” Vaidyanathan vowed. 

Here is all that you need to know about the developments around the bank.

Q. How did the fraud take place?

This is the oldest kind of fraud known to banking and done with the concurrence of some of the bank’s employees and external parties. The cheques were forged and physical transactions took place.

The debit instructions supposedly came from the client. Some of the bank’s employees passed the entries and fraudulently transferred the money to certain parties outside the bank from the client's account. There was no digital transaction or system error.

Q. How deep is the financial impact?

The impact amount is Rs 590 crore. This number could move from here and the bank could also get recoveries through these accounts. The legal process could itself establish and validate some of these claims.

The bank said the discrepancy currently assessed is about Rs 490 crore. Additionally, the bank has scanned the rest of the accounts from where it has identified another Rs 100-odd crore. That's why the bank feels that the total could be around Rs 590 crore.

The financial impact seems to be limited as deposits from the Haryana government account for just 0.5% of the bank’s overall base.

Q. Is there some amount to be recovered from insurance?

The bank has an employee dishonesty insurance policy to the tune of Rs 35 crore. To that extent, the financial impact would be reduced.

Q. Is the fraud footprint limited?

The bank has reiterated that the fraud is an isolated incident and is confined to one client group and a particular branch in Chandigarh. The matter is restricted to a set of Haryana government-linked accounts and discrepancies pertain to no other locations across its network of over 1,000 branches.

Q. How big a share are the government deposits in the bank’s total mix and is there a scare that it will all fly out?

It would be about 8-10% of the bank’s overall deposit base, broadly in line with the industry standards. This includes central government, state governments and public sector undertakings. Many of these organisations have a long track record with the bank.

The management is confident that there will be no spiral effect and other governments will continue to keep their accounts with the bank.

“I don't think that the whole system will have a concern, but we will still improve on our services from here on. Our relationships run back to 7, 8, 10 years, you know, it's just not about just deposits; it is basically providing a bunch of solutions. We are deeply integrated with them. We collect taxes for them, such as the GST. We believe this will be a matter that we will be able to handle and manage comfortably,” IDFC First Bank managing director and CEO V Vaidyanathan told investors and analysts in a specially convened call.

Q. Has there been communications from other governments since the fraud was disclosed?

Nothing, apart from the Haryana government, clarified Vaidyanathan. “We are deeply integrated, like system-to-system, host-to-host integrations are on. So, it's a running machinery; it's not only that somebody's left deposits with us,” he said.

Q. Will there be an impact overall on higher value deposit balances?

The bank believes that people will see through this as an incident which took place in a particular branch and on one kind of account.  According to the bank, deposits will continue to grow healthily because it has built a fantastic stack of capabilities – a good mobile app, relationship management, data lake, analytics, machine learning, artificial intelligence and hyper-personalisation, anti-spamming rules. As of 31 December 2025, the bank's deposit base was at Rs 2.82 lakh crore.

Q. What is the scope of the forensic audit to be done by KPMG?

The bank is working out the scope at this point of time. The nitty-gritties are being finalised.

Q. How long will it take?

The bank expects KPMG to move in very fast. The processes typically take about four to five weeks to conclude.

The bank has also taken full support of the law enforcement authorities. “We will get to the bottom of this and we will spare no one. We have quickly moved in and we will take it as it comes,” said Vaidyanathan.

Q. Since there is a possible connivance of multiple parties and some officials from the Haryana government could be involved, why should only IDFC First Bank pay for this?

The bank is evaluating all of these things in a legal sense. “I'd like to say that that our general approach is that if we feel with a hand on heart that this is our bank's mistake, then we will not litigate these things, we will pay up. If we feel that there are multiple parties involved, then we will go as per the process of law. But we intend to deal with this in an amicable manner with the entire ecosystem,” Vaidyanathan said.

Q. How long did this fraud go on before it was uncovered?

The bank came to know of this after it received the Haryana government's request to transfer funds to another bank. During the reconciliation process, there was a mismatch between the money that the government department thought was there in the account vis-a-vis what was actually in the account. The whole process accelerated during the last three days from 18 February onwards.

Q. Did the client not realise this happened and were not monthly statements sent out?

The bank said there were no lapses in the process and system triggered SMS and email alerts of every transaction had been sent to the authorised mobile numbers and email IDs on a periodic basis. It further stated that there was absolutely no error in the statement of account.

Q. Will the bank bring in new control mechanisms?

The bank is planning to put in place a system-based confirmation mechanism for high-value transactions exceeding a predefined threshold. It will trigger an alert on the customer’s registered mobile app. The customer will have to go to the app and approve the transaction within a stipulated time window before it is processed.

The bank will also introduce an initial checking by the AI on whether the signature in a cheque is matching that of the customer’s. This will then be doubly confirmed by the bank employee.

Q. What are the steps the bank has taken so far?

The bank has suspended four employees suspected of carrying out the fraud and police complaints have been filed. It has conducted proper fraud management committee meetings, board and audit committee meetings. It has also initiated recovery and lien marking actions across the banking system. It has also said that there is no senior management involvement in the entire incident and asserted that it remains well capitalised, with adequate buffers to absorb any impact.

Q. What is the view of the Reserve Bank of India?

RBI Governor Sanjay Malhotra said the Rs 590-crore fraud is not a ‘systemic issue’ and the central bank is keeping a watch on the developments around it.

Q. How fundamentally strong is the bank?

The bank is fundamentally in a strong position, with its operating profit having crossed 2% compared to 0.5% earlier. This is expected to rise further to around 3.5% in due course as the bank evolves fully, based on the base rate at which it lends and the margins it earns, which stood at 5.7–5.8 % last quarter. But this quarter it is expected to be around 5.8%.

The private sector lender’s customer business, which is both deposits and loans, has now touched Rs 5.6 lakh crore. The operating profit has risen from a few thousand crores to over Rs 7,000 crore.

Q. Will the bank cover in the scope of either the audit or a separate exercise a reconciliation of balances across governments to conclude that no gaps have been observed?

The bank will consider carrying out this due diligence exercise, either internally or externally, on the rest of the system as well.