A ₹590 crore fraud at IDFC First Bank!

In today’s Finshots, we break down what went wrong at IDFC First Bank and what this fraud means for private banks in India.

The Story

Transferring money today feels almost effortless. You pull out your phone, open your bank or UPI app, tap a few buttons and voila! Money sent.

Checks feel like relics from another era. And in many ways they are because less than 3% of all transactions in India happen through cheques.

And yet this small, almost-forgotten payment instrument managed to trigger a massive ₹590 crore fraud at one branch of IDFC First Bank.

But before we go any further, here’s something you should know. According to a statement by the Chief Minister of Haryana, approximately ₹556 crores some of the money fraudulently transferred has already been recovered.

But there are still some questions about how a fraud of such magnitude even took place.

To begin with, a few days ago, the Haryana Govt noticed something strange in the bank accounts maintained by it and its departments at IDFC First Bank’s Chandigarh branch. Instructions to park surplus funds in fixed deposits with higher interest was not followed. Instead, money sat idle in savings accounts, costing the government interest income.

Those eyebrows raised. So they asked for detailed bank statements. And that’s when things got serious. The balances reflected in the bank statements do not match what the government believed there should be.

Soon after, the government issued a circular de-empanelling IDFC First Bank and AU Small Finance Bank for government business. Departments were simply told to stop transacting through these banks, close their accounts and move funds elsewhere.

But when departments started closing accounts, they discovered that the balances still didn’t match. Preliminary findings indicate that bank employees allegedly used forged checks to siphon money to accounts outside the bank.

The total, as you already know, was around ₹ 590 crores.

Which brings us back to the awkward question – how did it even slip through?

See, you can hardly use checks as a mode of payment because digital payments have replaced most physical systems for retail transactions. But that’s just retail.

For large business and government transactions, checks still play a significant role. Because these accounts are not owned by one individual. They belong to institutions. And moving money out of such accounts usually requires several layers of authorization.

Now sure, all of this can be done digitally today. In fact, digital systems are often more secure, especially when multiple approvals are required. But many government departments, especially those spread over rural areas or places where physical processes are more familiar, still rely heavily on checks.

So think about what happens when you walk into a bank and say, “Hey, transfer money from my account to another.” In effect, you are handing over a check signed by someone authorized to operate that account.

Now, if that check carries a large amount, the banker doesn’t just blindly process it. They confirm with other authorized signatories. And if the amount exceeds the banker’s own approval limits, they escalate it to someone senior within the bank.

This layered process is called the maker-checker system. One person or the “Maker” initiates the transaction. And another independent person or the “Checker”, assesses and approves it. It is a double control four eyes principle designed to prevent fraud, reduce errors and ensure compliance.

But if you look closely at what the Haryana Chief Minister said, he was very specific. He mentioned that some “middle and lower level employees” at the bank’s Chandigarh branch conspired to collect the money with forged checks and transfer it to unknown accounts.

Now think about that for a moment.

Collecting hundreds of crores is not easy. Large transfers don’t just sail through a bank without higher-level approvals. It is hard to imagine that quantities of this scale could move without someone senior knowing.

And then there is the other side of the story — the government departments themselves. These are not small private accounts. Government departments reconcile their books periodically. If money is being transferred without authorization, how did no one notice? If reconciliations have not taken place properly, this indicates serious failure in accounting.

Now you can argue by saying, “Maybe it was small amounts that were slowly siphoned off over time.” But this also seems unlikely as departments usually review accounts every quarter. Which suggests that these transfers may have occurred over a short period of time.

All of this raises an uncomfortable possibility – that other than the so-called “middle and lower level” employees, others may have been involved. Yet it appears that those acting are those who carried out the transfers, and not necessarily those who authorized them.

Now, a lot of this is still a question mark. But step back for a moment and ask – what does a fraud of this scale actually do to a private bank like IDFC First Bank?

To begin with, the Haryana government has ordered all its departments, boards and PSUs to close their accounts with IDFC First and AU Small Finance Bank and move their funds elsewhere. Around ₹ 200 crores you already left But since Haryana state deposits account for around 0.5% of IDFC First Bank’s total deposits, this could mean as much as ₹1,400 crores walking out the door.

And it is not a paltry sum. Banks are already dealing with tight liquidity. If you have read our recent story on SBI’s recent resultsyou know that loan demand has been strong for banks, but deposit growth has not kept pace. This is where the credit-deposit ratio (CD) comes in. It measures how much of a bank’s deposits are used to finance loans. And it is a key indicator of liquidity and balance sheet health. A ratio of more than 80% indicates aggressive lending and potential liquidity risks. And while IDFC First Bank’s CD ratio has fallen from 134% pre-pandemic up to 93% now that’s still a risky number.

Because low-cost deposits such as savings and current accounts (CASA) have not grown meaningfully, and even down 5–6% post-pandemic, and banks leaned more on fixed deposits. These cost more. And higher financing costs squeeze profit margins.

So when cheap government deposits start pulling out, it hurts more than it would have five years ago.

Moreover, government bodies and PSUs still account for 8–10% of deposits in many banks. So if others decide to follow Haryana’s lead and shift funds to larger or public sector banks, smaller private banks like IDFC First may find themselves scrambling to raise deposits just to keep up with loan demand.

So yeah, it’s kind of a weird situation that the bank has put itself, and probably other banks, into. And for all we know, now that the money was recovered very quickly, in just 24 hours (which is again good, but very strange), it doesn’t look like a story that will continue to make the rounds in the news. Just like how every sensational story is talked about one day and forgotten the next day when something more interesting takes its place. So we may never really know for sure how or what exactly happened at IDFC First Bank.

But if we do, then that’s definitely a story for another day.

Until next time…

If this story has made you question the strange fraud at IDFC First Bank, share it with a friend, family member or even curious strangers WhatsApp, LinkedInand x.

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