Shares of IDFC First Bank plunged 16.18 per cent on Monday after the lender disclosed a ₹590-crore fraud linked to Haryana government accounts, allegedly involving collusion between bank staff and external individuals. The disclosure was made to stock exchanges on Sunday.

The stock closed at ₹70.04 on the BSE, down from the previous close of ₹83.56. In a pre-market investor call on Monday, the bank’s management described the episode as a specific incident confined to a Chandigarh branch. KPMG has been appointed to conduct a forensic audit. The bank is also strengthening internal checks and controls, it added.

The discrepancy has been pegged at around ₹590 crore, comprising ₹490 crore identified through reconciliation and an additional ₹100 crore self-identified through internal checks. The bank’s management indicated that the aggregate amount is unlikely to rise further. Potential recoveries and employee dishonesty insurance cover of ₹35 crore could partly mitigate the impact.

Market observers expect the bank’s profitability to be affected once provisions are made to account for the fraud.

Terming the episode a case of collusion involving employees and external parties through forged physical cheque transactions, managing director and chief executive V. Vaidyanathan said the issue was limited to one branch and one client group, and did not involve any system-reporting error.

“This is a serious matter for us. We have run the bank now for 10 years, and we have never seen an instance like this,” Vaidyanathan said during the analyst call.

“Obviously, a bunch of people have come together to make it happen, and we will get to the bottom of this. We have quickly moved in and appointed a forensic auditor, and we will expect them to move in with great diligence. We will also take full support of the law enforcement,” he added, noting that the bank remains fundamentally strong in terms of operating profit.

The opposition Congress on Monday raised the issue in the Haryana Assembly. Chief Minister Nayab Singh Saini assured the House that a probe has been ordered and the state’s anti-corruption bureau and the vigilance are investigating the matter.

IDFC First Bank has informed its board, the Reserve Bank of India and statutory auditors about the development. It has also filed police complaints and requested beneficiary banks to lien-mark balances in suspicious accounts. The lender is strengthening procedures for confirmation of high-value branch transactions, Vaidyanathan said.

Haryana government-linked accounts account for about 0.5 per cent of the bank’s total deposits, while overall government deposits — including central and state entities — constitute 8–10 per cent of the deposit base.

AU Small Finance Bank

AU Small Finance Bank has denied any wrongdoing in connection with the alleged fraud involving Haryana government-linked accounts.

The Haryana government has de-empanelled both AU Small Finance Bank and IDFC First Bank from undertaking government business.

In a late Sunday filing, AU Small Finance Bank said it has maintained a complete audit trail, including account-opening forms, KYC documentation, cheques and transaction instructions, verification call records and supporting documents, which have been submitted to the government department concerned.

“There is no indication of any financial impact or any fraudulent activity towards the bank,” the filing said.

Shares of AU Small Finance Bank fell 5.2 per cent on the BSE on Monday.