IDFC First Bank disclosed a ₹590 crore fraud linked to Haryana government accounts, triggering a 20% crash in its stock.
Four employees were suspended, a forensic audit by KPMG was launched, and Haryana de-empanelled the bank for government business.
While the incident may hurt deposits and sentiment, the RBI said there is no broader threat to the banking system.
Just ten minutes past midnight on Sunday, February 22, 2026, IDFC First Bank dropped a bombshell that caught investors off guard.
In a late-night stock exchange filing, the private lender revealed that employees at one of its Chandigarh branch were allegedly involved in unauthorised transactions worth ₹590 crore linked to Haryana government accounts.
3 February 2026
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By Monday morning, the news had snowballed into a full-blown market panic, triggering heavy selling pressure in the stock and rattling investor confidence.
How the Fraud Came to Light
The issue came to light after the bank received a request from a department of the government of Haryana to close its account and transfer the funds to another bank. During this process, the bank noticed discrepancies between the amount mentioned in the request and the actual balance in the account.
Soon after, other Haryana government entities also approached the bank with similar concerns. While reviewing these accounts, the bank found differences between the balances recorded in its system and the amounts stated by the account-holding entities, the filing mentioned.
The bank then suspended four employees and appointed KPMG to conduct a forensic audit, which is expected to be completed in the next four to five weeks.
According to the bank's management, the issue arose due to forged cheques and documents across multiple accounts, possibly involving collusion with some bank employees. Importantly, the bank said its core accounting systems always showed the correct balances, meaning no system-level manipulation occurred.
Market Meltdown
The fallout from this news was swift. Shares of the bank hit a 20% lower circuit on Monday, February 23. The shares were changing hands at ₹66.85 during the early trade from the previous close of ₹83.56, while it closed in the red at ₹70.04.
The fall wiped off millions from investors' wealth, including Life Insurance Corporation (LIC) and the government of India who are among the bank's top shareholders. There were pending sell orders of 2,152,520 shares during the morning session on Monday, with no buyers available, exchange data showed.
However, market sentiment improved the next day. The bank recovered from the previous day's losses on Tuesday after the Haryana government confirmed that the misappropriated funds had been retrieved.
The state government successfully recovered around ₹583 crore from the bank following the alleged fraud involving accounts linked to state departments.
The bank traded in green and closed 1.33% higher at ₹70.97 from the previous close of ₹70.04.
Addressing the Haryana Assembly, Chief Minister Nayab Singh Saini said the reclaimed amount includes approximately ₹22 crore in interest and was credited back to government accounts within 24 hours of the irregularity coming to light. "The entire amount has been deposited back into our accounts," he said, as quoted by news agency PTI.
Point to note: The state government had reacted to the alleged fraud by de-empanelling IDFC First Bank and AU Small Finance Bank for government business. Under this, no government funds will be parked, deposited, invested or transacted through these two institutions.
How Big Is The Impact?
The discrepancy amount represents about 1.3% of IDFC First Bank's net worth, 0.2% of total deposits, and around 7% of its estimated operating profit for financial year 2025-26 (FY26).
Brokerage firm Emkay Global Financial believes that this case is serious but not life-threatening for IDFC First.
While, Emkay belives this is an isolated operational lapse rather than a major governance failure, it has warned that the incident could lead to deposit outflows.
The Haryana government has already removed IDFC First Bank from its empanelled list, which means deposits of around ₹14.5 billion (0.5% of total deposits) could move out. Overall, government deposits account for 8-10% of the bank’s total deposits, raising the risk of further outflows and potential fee income loss.
IDFC First Bank has one of the strongest low-cost CASA (Current Account and Savings Account) deposit ratios among private banks at 51.6%. However, deposit outflows could push this below 50%, increasing funding costs and hurting margins in the near term, the brokerage noted.
Emkay has cut its earnings estimates for FY26, FY27 and FY28 by 30%, 13% and 9%, respectively, factoring in fraud-related provisions and business impact. The brokerage has reduced its target price by 16% to ₹80 from ₹95 but retained an "Add" rating, citing strong long-term growth and improving asset quality.
While near-term profitability may face pressure due to higher spending on internal controls and risk systems, Emkay believes the bank's long-term recovery story remains intact.
Notably, RBI Governor Sanjay Malhotra had also reacted to the fraud and said that the central bank is monitoring developments. "We are watching the developments. There is no systemic issue here."
"Banks have enough capital. Capital adequacy currently stands at 17%, while the regulatory requirement is 11.5%," Malhotra stated, seeking to reassure markets amid concerns that the episode could trigger broader stability worries in the banking system.
