Haryana Anti-Corruption Bureau Makes Key Arrests in Massive Bank Fraud Case
In a significant development, the Haryana State Vigilance and Anti-Corruption Bureau has arrested four individuals in connection with a staggering Rs 590 crore fraud involving IDFC First Bank. Officials confirmed the arrests on Wednesday, marking a crucial step in the ongoing investigation into one of the largest financial scandals to hit the banking sector recently.
Details of the Arrests and Investigation
The arrests, which took place late Tuesday, include two former employees of IDFC First Bank and two private individuals who operate a partnership firm. This action came as the investigation gathered momentum following the bank's disclosure of the fraud on Sunday. The Anti-Corruption Bureau had previously registered a First Information Report (FIR) in the matter, while the Haryana government established a dedicated committee to examine the suspected irregularities.
The fraud came to light when IDFC First Bank revealed that unauthorized transactions had been conducted at its Chandigarh branch in accounts linked to the Haryana government. This led to a deposit mismatch of approximately Rs 590 crore, an amount that notably exceeds the bank's third-quarter net profit of Rs 503 crore. In response, the bank has already paid 100% of the principal and interest to the concerned Haryana government departments, totaling a net payment of Rs 583 crore.
Bank's Response and Internal Findings
According to the bank's internal review, the irregularities appear to be confined to a specific set of Haryana government-related accounts at the Chandigarh branch. Managing Director and CEO V Vaidyanathan emphasized that the lapse was limited and resulted from internal collusion rather than any broader structural deficiency within the bank's operations.
"The bank has necessary controls in place, including maker, checker and authoriser for clearing cheques or debit instructions from the department," Vaidyanathan stated in an interview. "We have been in operation for over 10 years and have rolled out over 1,000 branches and have had no such incident before. Prima facie third-party entities are involved in this compromise... The issue is specific to one branch and one client group and is thus an isolated instance. There is no system-level issue."
Following the discovery, IDFC First Bank lodged a formal police complaint, informed its statutory auditors, and appointed KPMG to conduct an independent forensic investigation to determine the full extent of the fraud.
Market Reaction and Financial Impact
The revelation of the fraud triggered a sharp negative reaction in the financial markets, wiping out more than Rs 14,000 crore in investor wealth. On Monday, shares of IDFC First Bank hit the lower circuit after it became apparent that the alleged misappropriation was larger than the bank's quarterly earnings.
The stock, which had reached a 52-week high of Rs 87 in early January, plummeted to Rs 70 on Monday, representing a nearly 20% decline from its peak. By Wednesday, the stock continued to trade in negative territory, closing down 0.54 points or 0.46% at Rs 70.43, reflecting ongoing investor concerns about the bank's governance and risk management practices.
Oversight Measures and Government Response
In response to the crisis, IDFC First Bank's Board's Special Committee for Monitoring Fraud Cases convened on February 20, followed by meetings of the full Audit Committee and the Board on February 21. The bank also filed an early morning regulatory disclosure, confirming that it had informed the banking regulator and filed a police complaint regarding the incident.
To mitigate the financial impact, the bank has issued recall notices to beneficiary banks and sought lien marking of funds in accounts flagged as suspicious. Meanwhile, the Haryana government has taken decisive action by removing IDFC First Bank from its empanelled list, along with AU Small Finance Bank. State departments have been directed to close their accounts with both institutions, signaling a significant loss of government business for the banks involved.
This case highlights the critical importance of robust internal controls and vigilant oversight in financial institutions, particularly when handling government funds. As the investigation continues, authorities are expected to pursue additional leads and potentially make further arrests to ensure accountability for the substantial financial losses incurred.
