Shares of India's IDFC First Bank slumped as much as 20% on Monday, after the private lender disclosed suspected fraud amounting to 5.9 billion rupees ($65 million) over the weekend, fueling concerns about the potential impact on its earnings.
The stock was trading 15.8% lower at 70.29 rupees, its lowest since October 2025, as of 11:46 a.m. IST, and was on course for its worst session in six years. The shares led losses among banks. India's benchmark rose 0.35%.
IDFC First Bank, a mid-sized lender, has attracted investments from the likes of Warburg Pincus and Abu Dhabi Investment Authority last year. The Mumbai-based bank has a loan book of 2.79 trillion rupees ($30.8 billion) and deposits of 2.82 trillion rupees.
The private lender reported that the suspected fraudulent transactions were limited to government-linked accounts at a branch in Chandigarh city, where discrepancies surfaced after entities related to the northern state of Haryana sought to close accounts and the balances did not match records.
The issue came to light a month ago and the banking regulator, the Reserve Bank of India, is aware of the matter, IDFC First's management said in a conference call on Monday.
The RBI is watching developments at IDFC First Bank, governor Sanjay Malhotra said at a press conference following the central bank's board meet. "There is no systemic issue with the bank," he said.
The bank has suspended four employees and appointed KPMG to conduct an independent forensic audit.
UBS estimates the suspected fraud amount at about 22% of IDFC First's fiscal year 2026 profit after tax, though it expects the capital impact to be limited to around 1% of the net worth. Morgan Stanley pegs the potential hit to profit before tax at roughly 20%.
Jefferies said the lender would need to reassure investors that the issue had not spread to other clients, and added that the matter did not appear to be systemic.
IDFC First Bank has said it could make recoveries, including from accounts at other banks.
The bank has insurance against employee dishonesty and can potentially recover 350 million rupees through that, the management said on the analyst call, according to a Jefferies note.
Hit to government business
Analysts said the suspected fraud could impact the business of holding government cash balances, seen as lucrative due to the quantum of cash that moves through these accounts.
Following the disclosure of the suspected fraud, the government of Haryana removed IDFC First Bank and another lender, AU Small Finance Bank, from the list of banks in which government accounts can be held, according to a notification from the state. The government notification did not share any information on why AU Small Finance Bank has been removed from the list.
AU Small Finance said Haryana had sought information on transactions in an account, which has been submitted.
"Based on available facts at this stage and preliminary review, there is no indication of any financial impact or any fraudulent activity towards the Bank," AU Small Finance Bank said in a statement to exchanges.
Shares of AU Small Finance Bank fell as much as 7.74% in their steepest percent loss in more than a year. The stock was last down 7.2%.
"There will be greater scrutiny of government deposits in private sector banks," Macquarie analysts said in a note.
Total deposits from Haryana government form 0.5% of overall deposits for IDFC First and the impact is manageable, the bank's management told analysts, according to Jefferies.
