IDFC shares slump 16% on Rs 590cr fraud

MUMBAI: On a day its stock slid 16%, IDFC First Bank said it will remain profitable despite a Rs 590-crore hit from fraudulent transactions in Haryana govt-linked accounts, traced to employee collusion at its Chandigarh branch.

On a conference call, the bank's CEO V Vaidyanathan said the bank has appointed KPMG for a forensic audit and holds employee-fraud cover of up to Rs 35 crore.

Officials said forged cheques cleared at the branch triggered the fraud. "This is a specific isolated incident that happened in one branch with one client group," Vaidyanathan said, adding it is confined to "a particular branch in Chandigarh and is confined to a limited set of Haryana govt-linked accounts."

On the call, Vaidyanathan ruled out a digital breach. "This is a physical transaction where the cheques have been forged. This is the oldest kind of fraud probably known to banking," he said. "This looks to us on the basis of the work we've done clearly a case of an employee fraud," he said. Funds moved to beneficiary accounts outside the bank.

Vaidyanathan said that safeguards such as maker-checker-authoriser controls, positive pay for cheques, high-value checks, SMS alerts and monthly statements were in place. However, employee collusion cut through safeguards. "The issue in this case is that many of these people connived in making it happen." The bank will now seek pre-approval for clearing all high value cheques, management said.

Separately, AU Small Finance Bank said on Feb 22, that it acted strictly on written instructions from a Haryana govt department in transactions later scrutinised after the state de-empanelled the lender and raised concerns over a govt account. Its internal review found no fraudulent activity by the bank.

It identified 14 transactions totalling Rs 47 crore transferred from a "govt account" to a "customer account." To ensure a fair review, AU SFB placed certain employees off-duty.

Speaking in the Haryana Assembly, CM Nayab Singh Saini on Monday said that the money in the IDFC First Bank Rs 590-crore fraud case will "definitely come back", adding that appropriate action will be taken against the guilty.

IDFC First Bank has also suspended suspected staff. Vaidyanathan said the forensic audit by KPMG is expected to take "four to five weeks to conclude." The bank filed police complaints, began recovery/lien-marking across the system and will provide accordingly. "Please assume that we will take certain provisions for this," he said, adding, "Despite this hit, if we were to take one, we still expect to be profitable."