A Bank, A Breach, A ₹590-Crore Scandal

By Shivanand Pandit

Recently, IDFC First Bank has been facing several problems. Its share price fell sharply and hit the lower circuit limit. The Government of Haryana has also removed the bank from the list of banks allowed to handle the State government’s business. In addition, the bank has appointed KPMG to conduct a forensic audit. These developments came after a fraud of ₹590 crore was discovered at one of the bank’s branches in Chandigarh in the last week of February 2026.

IDFC First Bank said it was cheated in a fraud case where four of its employees worked together to illegally transfer ₹590 crore from the account of a Government of Haryana department. The issue came to light when the department tried to close its bank account and noticed that the balance shown in its own records did not match the actual amount in the bank. Later, the Haryana government said it had recovered the entire amount. However, the incident highlights how banks remain vulnerable to fraud, especially as digital transactions are increasing and creating new ways to commit financial crimes. The bank said the suspected ₹590-crore fraud took place at its Chandigarh branch and involved accounts linked to the Haryana government. Some branch employees, possibly working with outside individuals, illegally transferred money to people who held accounts in other banks. The bank’s Managing Director and CEO, V. Vaidyanathan, called it “clearly a case of employee fraud” and said there are signs that outsiders were also involved. The mismatch includes ₹490 crore identified during account checks and another ₹100 crore estimated by the bank.

A closer look at the fraud

According to statements made by the management of IDFC First Bank, the incident appears to be a cheque-based fraud, one of the oldest types of banking fraud. Investigations are still ongoing, but it is suspected that forged physical cheques were used by an external person who claimed to represent a department of the Government of Haryana. Bank employees allegedly helped by manipulating entries and clearing these cheques, allowing money to be transferred out of the government department’s accounts. Internal controls such as maker–checker approvals and SMS alerts reportedly failed to detect the irregularities until the discrepancy was noticed.

The fraud came to light when a Haryana government department asked the bank’s Chandigarh branch to close its account and transfer the remaining balance to another bank. During this process, the bank found that the amount claimed by the department did not match the actual balance in the account. Later, from February 18, 2026, several other Haryana government entities also reviewed their accounts and similar differences in balances were discovered.

After reviewing the situation, the bank said the fraud did not affect other customers of the Chandigarh branch. However, it has not yet disclosed the exact period during which the funds were transferred. The bank has suspended four branch officials while the investigation continues. Meanwhile, Nayab Saini announced that the state government will set up a high-level committee to identify and punish those responsible, whether they are bank employees, third-party intermediaries or government officials.

The bank said the financial impact is manageable. Deposits from the Haryana government account for about 0.5% of the bank’s total deposits, while all government deposits together make up around 8 to 10%. As of December 2025, the bank’s total deposits were about ₹2.82 trillion, showing a 24% increase from the previous year. Although the fraud amount of ₹590 crore is close to the bank’s December-quarter profit of ₹503 crore, the bank expects to remain profitable in the March quarter due to improving margins and lower credit costs.

To investigate the matter further, the bank has appointed KPMG to conduct a forensic audit, which is expected to be completed in four to five weeks. The bank has also filed police complaints, suspended the suspected employees, and started recovery measures. According to the bank’s management, the money was transferred to accounts in several other banks, which are cooperating with the investigation. Meanwhile, the Haryana government has de-empanelled IDFC First Bank from handling fresh deposits and has started its own review of the transactions.

The Stark Truth

Recent fraud cases in India show that such incidents can reduce depositors’ confidence in banks and lead to withdrawal of funds. For example, according to Emkay Global Financial Services, a discrepancy of ₹1,960 crore at IndusInd Bank in March 2025—caused by an internal accounting mismatch—led to a fall of about ₹3,350 crore in retail and small business deposits during that quarter. In another case, the Reserve Bank of India (RBI) restricted withdrawals from New India Cooperative Bank in February 2025 after cash discrepancies of ₹122 crore were found. Smaller frauds involving bank staff were also reported at ICICI Bank and Equitas Small Finance Bank. Such incidents may lead to stricter monitoring of government deposits kept with private banks, and some funds could gradually shift to public sector banks. RBI Governor Sanjay Malhotra said the central bank is closely watching the situation and clarified that there is no systemic risk to the banking system.

According to RBI data, Indian banks reported 11,615 fraud cases involving ₹3,497 crore in 2024–25, higher than the previous year. The largest share of fraud value came from loan-related cases (about 33%), followed by deposit-related frauds (around 10%). However, in terms of number of cases, card and internet banking frauds made up nearly two-thirds. Fraud statistics must be interpreted carefully because banks sometimes change the classification of cases after investigation. This became more common after a 2023 Supreme Court judgment related to RBI rules on classifying frauds, which required banks to re-examine earlier cases. Because of this reclassification, the reported value of frauds appeared to rise sharply in 2024–25, although many of those cases actually occurred in earlier years.

At the overall level, fraud does not pose a major threat to India’s banking system. In 2024–25, the total value of fraud reported by banks was about ₹34,771 crore, which is only 0.14% of the ₹241 trillion in deposits held by banks as of March 31, 2025. Another way to see this is that the amount involved in fraud was roughly 5% of the total operating profit of banks during that year. Public sector banks accounted for about 71% of the total fraud amount, even though they held about 55% of the banking sector’s assets. RBI also noted that while the share of card and internet frauds declined, the share of loan-related frauds increased for most categories of banks, mainly due to the reclassification exercise.

The list of the top 10 banks with the highest fraud amounts in 2024–25 is dominated by public sector banks. State Bank of India topped the list. IDBI Bank ranked second, although it is officially a private bank; its largest shareholder is Life Insurance Corporation of India. The other private banks in the list are Axis Bank and HDFC Bank. Interestingly, while HDFC Bank and Axis Bank reported a high number of fraud cases, the amount involved per case was relatively small. For example, the average fraud size was about ₹17 lakh at HDFC Bank, compared with about ₹1.9 crore at SBI. According to RBI, card and internet frauds account for the largest number of cases reported by private banks.

In terms of the amount of money involved, loan frauds remain the biggest category. However, for ordinary banking customers, the most common frauds involve cards, internet banking, and increasingly UPI payments. The number of UPI fraud cases tripled between 2021–22 and 2023–24, while the amount involved increased about 4.5 times. Although there was a slight decline in 2024–25, the numbers remain significant. Still, compared with the total volume of UPI transactions, fraud remains very small. In the eight months up to November 2025, there were about one million UPI fraud cases involving ₹805 crore, which represents just 0.00068% of total transactions by volume and 0.0039% by value.

When customers report fraudulent UPI transactions, banks initiate a chargeback process, which is a formal request to reverse an unauthorized transaction. In December, the government informed Parliament that 22% of fraud chargebacks between April and September 2025 were processed within seven days, and 92% within 30 days. However, the actual recovery of money for customers remains low—only 6% of the total disputed amount was returned. Nine banks accounted for 57% of all chargebacks during this period. Yes Bank and Axis Bank together accounted for about one-quarter of the chargebacks (15% and 12% respectively), partly because a large share of UPI transactions flows through them. Data from the National Payments Corporation of India shows that Yes Bank handled 40.5% of UPI transactions and Axis Bank about 9% in January.

Although banking fraud does not threaten the overall stability of the financial system, it still poses a serious concern for individual customers and banks. Such incidents can lead to financial losses, reduce trust in banking institutions, and create reputational risks for banks. As the use of digital banking and electronic payment systems continues to expand, the opportunities for fraudsters to exploit technological gaps and carry out fraudulent transactions are also increasing. Therefore, even if the impact at the system level remains limited, the risk at the individual and institutional level remains significant and requires constant monitoring, stronger controls, and greater awareness among customers.