Shares of IDFC First Bank in India experienced a significant drop on Monday, triggered by the disclosure of a suspected fraud amounting to 5.9 billion rupees ($65 million). The stock price slumped as much as 20% before closing 16.13% lower at 70.04 rupees, marking a nearly five-month low. This decline fueled concerns about the potential impact on the bank’s earnings and led losses among banking stocks. IDFC First Bank is an Indian mid-sized lender that has attracted investments from Warburg Pincus and Abu Dhabi Investment Authority. The Mumbai-based bank manages a substantial loan book of 2.79 trillion rupees ($30.8 billion) and deposits of 2.82 trillion rupees.
The suspected fraudulent transactions were reportedly limited to government-linked accounts at a branch in Chandigarh. Discrepancies emerged when entities related to Haryana sought to close accounts, revealing mismatches with bank records. The Reserve Bank of India (RBI) is aware of the matter and is closely monitoring developments. The bank has suspended four employees and appointed KPMG to conduct an independent forensic audit. The RBI governor assured that there is no systemic issue with the bank.
Analysts have weighed in on the potential impact. UBS estimates the suspected fraud at about 22% of IDFC First’s fiscal year 2026 profit after tax, while Morgan Stanley pegs the potential hit to profit before tax at roughly 20%. Jefferies noted that the lender would need to reassure investors that the issue had not spread to other clients. IDFC First Bank has indicated it could make recoveries, including from accounts at other banks, and also has insurance against employee dishonesty, potentially recovering 350 million rupees.
Following the fraud disclosure, the government of Haryana removed IDFC First Bank and AU Small Finance Bank from the list of banks in which government accounts can be held. AU Small Finance Bank shares also fell, closing down 5.4%. Macquarie analysts anticipate greater scrutiny of government deposits in private sector banks as a result of this incident. IDFC First Bank’s management has stated that total deposits from the Haryana government represent only 0.5% of the bank’s overall deposits, suggesting a manageable impact.
