IDFC First Bank Shares Tumble After $65 Mln Fraud Disclosure

Shares in India’s IDFC First Bank plunged as much as 20% on Monday after the lender revealed suspected fraudulent transactions worth 5.9 bn rupees, or about $65 mln, heightening investor concerns over the hit to earnings.

By late morning in Mumbai, the stock was down 15.8% at 70.29 rupees, its lowest level since October 2025 and on track for its steepest single-day fall in six years. The bank led losses on the banking index even as India’s benchmark index edged 0.35% higher.

Fraud Linked to Government Accounts

The Mumbai-based mid-sized lender said the suspected fraud was confined to government-linked accounts at a branch in Chandigarh. The discrepancies emerged after entities connected to the northern state of Haryana attempted to close accounts and balances failed to align with records.

The issue surfaced about a month ago and has been reported to the Reserve Bank of India. Governor Sanjay Malhotra said the central bank was monitoring developments but stressed there was no systemic problem at the bank.

IDFC First has suspended four employees and appointed KPMG to carry out an independent forensic audit.

Earnings Impact and Market Reaction

Analysts said the financial impact could be significant but manageable. UBS estimates the amount involved equals roughly 22% of the bank’s projected fiscal 2026 net profit, while Morgan Stanley sees a potential 20% hit to profit before tax. However, UBS expects the effect on capital to be limited to around 1% of net worth.

The bank said it may recover some funds, including through insurance covering employee dishonesty, with potential claims of up to 350 mln rupees.

The disclosure also prompted Haryana’s government to remove IDFC First Bank and AU Small Finance Bank from its list of approved institutions for holding state accounts. AU Small Finance said there was no indication of fraud affecting its operations, though its shares dropped more than 7%.

Analysts warned that private lenders may now face increased scrutiny over government deposits. According to the bank’s management, Haryana’s deposits account for about 0.5% of IDFC First’s total deposits, suggesting the broader impact should be contained.

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