Indian state chief minister says IDFC First Bank delayed acting on suspected fraud

MUMBAI: Indian private lender IDFC First Bank delayed acting on suspected fraudulent activity in government accounts, chief minister of the northern state of Haryana said on Monday.

The bank disclosed on Saturday suspected fraudulent transactions totaling 5.9 billion Indian rupees ($65 million) in accounts linked to the Haryana state government, which led to the suspension of four employees and a forensic audit by KPMG. Shares of the bank plunged on Monday.

Nayab Singh Saini, chief minister of Haryana, told the state legislative assembly that the discrepancies were first detected in January, according to a statement.

The government instructed the bank to close the accounts and transfer the funds along with interest to another lender but IDFC First did not do so, Saini said.

IDFC First Bank probes suspected $65mn fraud in accounts of government entities

The instructions were issued again at the end of January, after which “more serious” discrepancies were detected in February, when inconsistencies were found between the documents provided by the bank and government records, Saini said.

The bank accounts saw multiple transactions without state approval over the past 3 months, the minister said, without providing exact details on the number of accounts or the quantum of funds moved.

On February 18, the state finance department ordered the closure of all accounts held with IDFC First Bank, according to the statement.

Haryana has referred the matter to State Vigilance & Anti-Corruption Bureau for investigation, Saini said.

Another lender, AU Small Finance Bank, has also been dropped from the list of banks that operate Haryana government accounts, the government said, without giving a reason.

AU Small Finance has acknowledged the receipt of queries from the state government but has ruled out fraud.

Emails to IDFC First Bank and AU Small Finance Bank seeking responses to the state’s comments were not immediately answered.