RBI Reacts to IDFC First Bank Fraud Case, Governor Assures No Systemic Threat
The Reserve Bank of India (RBI) has officially responded to the emerging fraud case at IDFC First Bank, which surfaced over the weekend. RBI Governor Sanjay Malhotra stated on Monday that the central bank is closely monitoring the developments but emphasized that there is no systemic issue at play. This reassurance comes amid concerns about the integrity of banking operations linked to government accounts.
Details of the Rs 590 Crore Fraud Involving Haryana Government Accounts
IDFC First Bank's Managing Director and Chief Executive Officer, V. Vaidyanathan, disclosed that the fraud, amounting to approximately Rs 590 crore, originated from collusion between certain bank employees and external entities. The irregularities are specifically tied to Haryana government accounts and were identified through a combination of reconciliation processes and internal detection.
Vaidyanathan explained during a special investor call that the discrepancy includes Rs 490 crore uncovered via reconciliation and an additional Rs 100 crore found internally. He expressed confidence that this figure is unlikely to increase further, stating, "We have put out this number as we could have assessed at this point of time—we don't anticipate this to broadly move from here on."
Financial Impact and Provisions
Despite the significant fraud amount, Vaidyanathan assured stakeholders that the financial impact is not expected to severely affect profitability. The bank plans to make provisions in line with its policy of early stress recognition. He highlighted that improved net interest margins and reduced credit costs would provide a buffer, adding, "So, on a standalone basis, we were expecting a very solid Q4 in terms of profitability."
To mitigate losses, the bank has an "employee dishonesty insurance" cover of Rs 35 crore and is pursuing recoveries through measures such as lien-marking actions across the banking network.
Forensic Review and Regulatory Actions
An independent forensic review is being conducted by advisory firm KPMG, which was appointed on Sunday. Vaidyanathan estimated that the process would likely conclude within four to five weeks. He described the fraud as involving forged physical cheque transactions, with irregularities confined to a single branch and one group of clients, asserting that there is no flaw in the bank's reporting systems.
In response to the fraud disclosure, the Haryana government has removed IDFC First Bank and AU Small Finance Bank from its empanelled list for handling government business. AU Small Finance Bank has denied any involvement in wrongdoing.
Broader Implications and Deposit Base
Vaidyanathan noted that deposits linked to the Haryana government account for about 0.5 percent of the bank's total deposits. Overall, government deposits from central and state entities constitute between 8 and 10 percent of the deposit base. The bank has filed police complaints, informed regulators and statutory auditors, and initiated recovery efforts to address the situation.
This incident underscores the importance of vigilance in banking operations, particularly concerning government accounts, and highlights the ongoing efforts by financial institutions and regulators to maintain trust and stability in the system.
