Haryana chief minister Nayab Singh Saini and Reserve Bank of India (RBI) governor Sanjay Malhotra on Monday gave assurances that the money is safe, after an alleged ₹590-crore fraud involving state government accounts came to light at IDFC First Bank.
CM Saini told the Vidhan Sabha in Chandigarh that the money involved in the IDFC First Bank case “will definitely come back”. He also informed the House that the matter has been handed over to the Anti-Corruption Bureau (ACB) and the vigilance department, news agency PTI reported.
He further noted that IDFC First Bank had communicated with the Securities and Exchange Board of India (SEBI) claiming an employee was responsible for the irregularities.
In New Delhi, RBI governor Sanjay Malhotra said the central bank is “watching the development” surrounding the case but assured the public that “there is no systemic issue”. He clarified, thus, that the fraudulent activity was confined to a specific set of accounts and did not indicate a broader failure within the national banking system.
The RBI’s statement followed a disclosure by IDFC First Bank reported on Sunday regarding the irregularities found at its Chandigarh branch.
Nub of ₹590-crore question
The suspected fraud was first detected when a Haryana government department requested to close its account at a Chandigarh branch of IDFC First Bank and transfer the balance to another institution, reports said.
As reported by the Hindustan Times, the bank observed a significant difference between the balance reported by the department and the actual funds held in the account.
Initial assessments by the bank identified a shortfall of ₹490 crore. Further internal reviews conducted by the lender identified an additional ₹100 crore in irregularities, bringing the total estimated discrepancy to ₹590 crore.”>approximately ₹590 crore.
The bank’s regulatory filing to the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) specified that these irregularities were limited to a specific group of government-linked accounts and did not impact other branch customers, HT has reported.
How was ‘fraud’ carried out?
The mechanics of the alleged fraud were detailed by IDFC First Bank managing director and CEO V Vaidyanathan during a conference call with investors, PTI reported. Vaidyanathan described the incident as a case of “employee fraud” involving the connivance of bank staff and external parties. The fraudulent activity utilised physical transactions involving cheques, he said.
The CEO noted that the bank’s internal “fingerprints” and data clearly indicated the involvement of external entities. The bank management has currently found no evidence of involvement by its senior leadership, he added.
Action and reaction so far
Following the detection of the irregularities, the Haryana government is reported to have taken immediate administrative action. On February 18, the state’s finance department issued instructions to de-empanel IDFC First Bank and AU Small Finance Bank with immediate effect. These instructions were issued by the relevant additional chief secretary, and directed all state departments, boards, and public sector undertakings to cease all business with the two banks.
While the initial instructions from the finance department did not state a reason for the move, Saini confirmed in the assembly that the de-empanelment was a direct response to the detected fraud.
IDFC First Bank has suspended four officials suspected of involvement in the fraudulent transactions. The bank has also filed a formal police complaint and informed the banking regulator. To ensure an objective investigation, the bank is appointing an independent external agency to conduct a forensic audit, it has said.
The bank’s regulatory filing noted that its statutory auditors have been informed of the discrepancies. Internal oversight committees, including the Special Committee of the Board for Monitoring and Follow-up of Cases of Frauds, met on February 20, followed by meetings of the audit committee and the board of directors on February 21, it explained.
The disclosure of the alleged fraud had an immediate impact on the stock market, as shares of IDFC First Bank tumbled by around 20% on Monday, hitting the lower circuit limit of ₹66.85 on the BSE. AU Small Finance Bank, which was also named in the state government’s de-empanelment order, saw its shares fall by 7.6% to an intra-day low of ₹950.50.
Political demands for accountability
The issue became a point of debate in the Haryana assembly on Monday, where Leader of the Opposition and Congress MLA Bhupinder Hooda raised concerns about the security of state funds. Hooda noted that while the bank had detected the irregularities, the government must provide a full account of the actions taken to protect the public exchequer.
In response to the opposition, Saini reiterated that the state government’s investigation is being conducted with transparency. He confirmed that the state crime branch is investigating the matter alongside the ACB. Saini assured the members that the government would not take the issue lightly and that any employee found to be involved would face strict consequences.
www.hindustantimes.com
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