Shares of IDFC First Bank came under intense selling pressure on February 23, falling nearly 19 percent after the lender revealed a ₹590-crore fraud involving employees and certain external parties. The disclosure, made through an exchange filing and detailed on the bank’s official platform, triggered investor concerns about internal controls, reputational damage, and the potential loss of government business.

The bank said the irregularities were detected in a specific set of accounts linked to departments of the Haryana government, operated through a branch in Chandigarh. A preliminary internal review found that unauthorized transactions had taken place, prompting the bank to notify regulators and file a police complaint. Four officials have been suspended pending investigation, while an independent forensic audit has been commissioned.

According to the lender, the issue surfaced when a government department requested closure of its account and transfer of funds to another bank. Discrepancies between the reported balance and actual funds triggered further scrutiny, which uncovered similar anomalies across related accounts. The bank emphasized that the suspected fraud appears confined to these government-linked accounts and does not affect other customers of the branch.

Brokerage estimates suggest the amount under reconciliation equals roughly 0.9 percent of the bank’s net worth and about one-fifth of its expected pre-tax profit for FY26. While not systemically threatening, the figure is material enough to dent earnings and capital efficiency for the year.

The immediate fallout has been severe. The Haryana government has de-empanelled IDFC First Bank for all government business with immediate effect until further notice. AU Small Finance Bank has also been removed from the panel, though details of its involvement remain unclear. The state’s finance department has directed that no government funds be deposited, invested, or transacted through these institutions for now. For banks, government accounts are typically stable, low-risk deposit sources that enhance CASA ratios and fee income, making the loss strategically significant even if temporary.

Operationally, the bank has initiated recovery measures by issuing recall requests to beneficiary banks and seeking lien marking of balances in suspicious accounts. Statutory auditors have been informed, and a special board committee on fraud monitoring has reviewed the matter. The audit committee and board have also been apprised, indicating escalation to the highest governance levels.

From a market perspective, the sharp stock reaction reflects not just the financial impact but concerns over internal risk management. Banking investors tend to penalize governance lapses disproportionately because trust is the sector’s core asset. Even isolated fraud cases can raise questions about systems, supervision, and culture.