Chandigarh: IDFC First Bank is set to recover around Rs 35 crore under its employee dishonesty insurance policy after uncovering a Rs 590 crore fraud at its Chandigarh branch, providing only partial relief as the lender works to contain the fallout.

Management informed investors that the bank maintains an institutional-level employee dishonesty cover of Rs 35 crore. The eventual financial impact will be reduced to that extent, subject to admission and settlement of the claim. Any loss beyond the insured amount will be borne by the bank. The policy covers losses arising from fraudulent or dishonest acts committed by employees.

The bank has suspended four officials in connection with the incident and lodged complaints with law enforcement agencies. Regulators and statutory auditors have also been notified.

A forensic audit is under way, with KPMG appointed to carry out an independent investigation. The probe is expected to conclude within four to five weeks.

Managing Director and Chief Executive V. Vaidyanathan said provisions would be created in accordance with the bank’s policy of early recognition of stress. He stressed that the issue was confined to a single branch and a specific client group, and involved forged physical cheques.

Describing the episode as a non-digital breach, Vaidyanathan said the fraud involved forged cheques and manual debit instructions. “This is perhaps the oldest kind of fraud known to banking,” he said, adding that the incident occurred due to the connivance of employees.

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The discrepancy first came to light when a government request to transfer funds revealed a Rs 490 crore shortfall. Subsequent internal checks identified an additional estimated Rs 100 crore.

Despite the scale of the fraud, which exceeds the bank’s reported quarterly profit of Rs 503 crore, management sought to reassure investors of its financial resilience.

Shares of the lender fell 16.18 per cent to close at Rs 70.04 on the BSE. The decline came even as the benchmark BSE Sensex rose 0.58 per cent during the session, underlining stock-specific concerns.