MUMBAI: Confidence in India’s financial sector is always provisional. The latest reminder comes from IDFC First Bank (IDFB.NS), opens new tab, whose shares have struggled to rebound after plunging 16 percent on Monday, when the USD7 billion lender flagged a suspected fraud involving Haryana state government accounts.
The selloff looks excessive. But the bank’s inconsistent earnings record since its enlargement from a 2018 merger between IDFC Bank and Capital First – a non-bank lender once favoured by foreign investors – helps explain why the market is reluctant to give management the benefit of the doubt.
The institution, backed by Warburg Pincus with a 10 percent stake and Abu Dhabi Investment Authority with 5 percent, is investigating the episode, which involves old-school cheque deception and amounts to 5.9 billion rupees (USD65 million). Chief executive V. Vaidyanathan has described, opens new tabit as “a specific isolated incident” confined to a single branch. The bank has suspended employees and ordered a forensic audit.
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IDFC has moved quickly to contain the damage. It has paid out the full amount claimed by Haryana after Nayab Singh Saini, the state’s chief minister, accused the bank of delaying action on the fraud. The hit more than wipes out earnings for the three months to December 2025 and equals about 38 percent of full?year profit. Yet IDFC’s blunt response should reduce the risk of other states following Haryana in cutting ties with the lender; government deposits account for roughly 10 percent of its funding base.
Vaidyanathan, founder of Capital First—the lender Warburg Pincus originally backed—has steered the enlarged bank well. He has built a low cost liability franchise that now accounts for 52 percent, opens new tab of total deposits, the highest share among mid sized private banks. Its tier1 equity capital ratio of 14% is also comfortably above the 9 percent regulatory minimum.
Yet despite net profit having trebled over the past four financial years, earnings have been uneven. Microcredit problems cut profit by 48 percent in the year to March 2025, while provisions for stressed infrastructure loans dragged on results in earlier years. Investors scarred by years of misreporting by Indian banks will sell on any sign of weakness.
IDFC First Bank delayed addressing suspected fraudulent activity in government accounts, Nayab Singh Saini, Chief Minister of the northern state of Haryana said on February 23. A day later the bank said it has paid the state its entire claim of a net 5.83 billion rupees (USD64 million).
The private bank on February 21 said it was investigating a suspected fraud of nearly 6 billion rupees by some employees involving accounts of local government entities and that the bank had alerted the police.
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