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“Another bump in the road for IDFC First Bank”

ICICIdirect Research 27 Feb 2026 DISCLAIMER

IDFC First Bank informed about a fraud involving an estimated ₹590 crore, irregularity linked to Haryana government accounts operated through its Chandigarh/Sector-32 branch. The issue surfaced during account reconciliation after a government department sought fund transfer, revealing a ₹490 crore, mismatch initially, with an additional ₹100 crore, gap identified across related accounts.
Investigations indicate that certain branch employees allegedly colluded with external parties to process unauthorized physical cheques and debit notes using forged signatures, enabling diversion of funds over several months. Around ₹300 crore, was routed to a private entity owned by relatives of key accused, highlighting operational lapses in manual transaction controls.
Law-enforcement agencies have arrested four individuals, including two former bank employees, while Haryana government constituted a probe committee and temporarily de-empaneled the bank for government business. Importantly, the bank has repaid ~₹583 crore (principal plus interest) to affected departments, limiting direct financial loss but not reputational impact.
The upfront payout of ₹583 crore, is likely to translate into a one-time impact on Q4FY26 earnings, exerting pressure on profitability, thus resulting in a steep decline of 16-17% in valuation. That said, potential recovery via insurance claims and legal proceedings could partly offset the loss; the bank is expected to receive ~₹35 crore, under its employee dishonesty insurance policy. Further, the bank has initiated a forensic audit and appointed KPMG to conduct an independent review of the transactions, assess internal control failures and recommend corrective measures.
From financial perspective, Haryana government balances constitute only ~0.4–0.5% of deposits, while overall government deposits form 8–10% of the bank’s deposit base, suggesting limited structural funding risk. While management maintains that the issue is isolated to specific accounts, investor focus will remain on forensic findings, accountability actions and confirmation that no material incremental fraud exposure emerges going forward. Thus, in near term, until clarity emerges, stock could remain in a narrow band. However, given stabilizing asset quality, strong liabilities franchise and gradual improvement in earnings trajectory in FY27-28E, we maintain our positive stance on the stock from long term horizon.

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