New Delhi: Shares of IDFC First Bank plummeted 20% on Monday, hitting the lower circuit limit after the private sector lender admitted to a ₹590-crore fraud involving Haryana government accounts at its Chandigarh branch.

The disclosure triggered a swift regulatory backlash, with the Haryana government immediately de-empanelling both IDFC First Bank and AU Small Finance Bank from all state-related business. Following the state's directive for departments to withdraw funds and close accounts, IDFC First Bank shares crashed to ₹66.85 on the BSE, while AU Small Finance Bank saw its stock drop 7.62% to an intraday low of ₹950.50.

IDFC First Bank confirmed on Sunday that the multi-million dollar discrepancy was the result of unauthorised activities carried out by a group of its own employees in collusion with external parties.

Corporate Crackdown and Provisions

Managing Director and CEO V. Vaidyanathan addressed investors in a special call on Monday morning, stating the bank would front-load provisions to address the financial stress caused by the fraud.

"The bank will take some provisions as a result of the fraud and in line with its policies to recognise any stress upfront," Vaidyanathan said. The bank has already suspended four officials suspected of involvement and filed a formal police complaint. To ensure a thorough investigation, the lender is in the process of appointing an independent external agency, reportedly KPMG, to conduct a forensic audit.

AU Small Finance Bank Denies Misconduct

While also facing de-empanelment, Jaipur-based AU Small Finance Bank has maintained that it followed all regulatory protocols. In a Sunday evening filing, the lender explained that the government account under scrutiny was opened with an initial ₹25 crore from a major private bank, followed by ₹47 crore in additional credits transferred from IDFC First Bank.

AU stated that ₹47 crore was subsequently moved through 14 transactions to a customer account, asserting that these transfers were "duly authorised and executed" according to instructions from the government department. The bank noted that its exposure to Haryana government deposits dropped from ₹735 crore to ₹538 crore following the state's order.

State Response

A circular from the Haryana finance department has barred all state-run boards, corporations, and public sector undertakings from transacting with the two lenders until further notice.

"IDFC First Bank and AU Small Finance Bank are hereby de-empanelled for government business in Haryana with immediate effect till further orders," the circular stated. The government also expressed concerns over systemic irregularities where banks allegedly kept public funds in low-interest savings accounts rather than higher-yielding flexible deposits.

The fraud was uncovered when several state entities contacted the bank on February 18 to reconcile their balances, revealing significant mismatches between the bank's records and the government's books.

With inputs from PTI