Rs 590 crore, govt-linked accounts, money recovered in 24 hours: All about Haryana IDFC First Bank fraud case

Haryana Chief Minister Nayab Singh Saini has informed the State Assembly that the government recovered nearly Rs 556 crore owed to it in the IDFC First Bank case

IDFC First Bank got embroiled in a major financial scandal following the disclosure of a Rs 590-crore fraud involving Haryana government-linked accounts. The disclosure about the fraud, centered at the bank’s Chandigarh branch, triggered a sharp market reaction on Monday and a high-level investigation by State and Central authorities.

On Tuesday, Haryana Chief Minister Nayab Singh Saini said the amount deposited with the bank had been recovered, including interest, within 24 hours of the fraud coming to light.

A case of 'collusion'

The irregularities first came to light a few days ago when a Haryana government department requested to close its accounts and transfer funds. The bank discovered a mismatch between its internal records and the department's stated balance.

Bank's managing director and chief executive officer V Vaidyanathan has described it as a case of "collusion" involving employees and external parties through forged physical cheque transactions. He said the issue was confined to one branch, one client group, and asserted that there was no system reporting error.

Preliminary findings suggest that the employees in question colluded with external parties to bypass standard security protocols, such as the "maker-checker" system.

The bank initially identified a shortfall of Rs 490 crore, with an additional Rs 100 crore found through internal checks, bringing the total suspected fraud to Rs 590 crore.

"We have put out this number as we could have assessed at this point of time — we don't anticipate this to broadly move from here on," Vaidyanathan said.

Complaint filed, four officials suspended

The bank has filed a police complaint, suspended four officials at the Chandigarh branch suspected to have involvement in the fraudulent transactions, and informed regulators and auditors.

It has issued recall notices to other financial institutions to "lien-mark" (freeze) funds in suspicious beneficiary accounts.

The bank has also appointed global firm KPMG to conduct an independent forensic investigation. The findings are expected in four to five weeks.

The case has been handed over to the Anti-Corruption Bureau and the State's Vigilance Department.

What did RBI say?

Both the bank management and Reserve Bank of India Governor Sanjay Malhotra have clarified that the issue is isolated to a specific set of government accounts. There is "no evidence of a systemic risk" to the savings and fixed deposits of regular retail customers, they have said.

"We are watching the development, there is no systemic issue," Malhotra told reporters on Monday.

The Haryana government on its part has de-empanelled IDFC First Bank and AU Small Finance Bank from State business.

AU Small Finance Bank has denied any wrongdoing in the matter.

Chief Minister Nayab Singh Saini confirmed that all State departments have been directed to move their funds to nationalised banks.

Investor confidence was hit as the bank's stock price plummeted by nearly 20 per cent on Monday.

Amount deposited back, says Haryana CM

On Tuesday, Saini informed the State Assembly that the State government had recovered nearly Rs 556 crore owed to it in the IDFC First Bank case.

"Nearly Rs 556 crore, including nearly Rs 22 crore in interest, came back within 24 hours," Saini said in the House.

"I want to clarify before the House that the money concerning Haryana government departments, (the) entire amount has been deposited back into our accounts...The recovery has been made within 24 hours," Saini said.