TheInterviewTimes.com | February 23, 2026 | 11:47 AM IST | New Delhi
Haryana de-empanels IDFC First Bank and AU Small Finance Bank after Rs 590 crore fraud at Chandigarh branch; shares sink as forensic audit begins.
The Haryana government has de-empanelled IDFC First Bank and AU Small Finance Bank from handling all state government business following the detection of an alleged Rs 590 crore fraud linked to government accounts. The decision, announced through an official circular dated February 18, 2026, bars all state departments and agencies from parking, depositing, investing, or transacting public funds through the two banks until further notice.
Here is a detailed look at the case and the latest developments as of February 23, 2026.
Incident Background
The controversy surfaced after a Haryana government department initiated the closure of certain accounts and requested the transfer of funds. During the process, officials detected discrepancies in account balances, triggering an internal review.
Subsequently, IDFC First Bank disclosed in a regulatory filing dated February 21 that unauthorised activities amounting to Rs 590 crore were identified at its Chandigarh branch involving Haryana-linked accounts. The bank suspended four employees and lodged a police complaint.
The Haryana government acted swiftly by issuing a de-empanelment order against both IDFC First Bank and AU Small Finance Bank. The circular explicitly stated that no further government transactions would be permitted with these institutions until investigations are completed.
In addition to the fraud allegations, authorities are also examining whether government funds were parked in low-interest savings accounts instead of higher-yield fixed deposits, potentially resulting in financial losses to the state exchequer.
IDFC First Bank Fraud Details
According to disclosures, the Chandigarh branch of IDFC First Bank managed multiple Haryana government accounts allegedly impacted by fraudulent transactions totaling Rs 590 crore.
Preliminary findings suggest that certain employees may have facilitated unauthorised fund transfers. The bank has initiated recall requests to beneficiary banks and placed liens on suspicious accounts to prevent further movement of funds.
A special board committee reviewed the matter on February 20, 2026. The bank has appointed KPMG to conduct an independent forensic audit, which is expected to take four to five weeks.
IDFC First Bank stated that, given its capital buffers and financial position, the incident is not expected to have a material impact on profitability. The bank has also informed statutory auditors and regulatory authorities and said it is pursuing both civil and criminal proceedings against those involved.
AU Small Finance Bank’s Position
AU Small Finance Bank received a query on February 16 from a Haryana government department regarding a particular account. On February 18, it was notified of suspected unauthorised transactions worth Rs 47 crore.
According to the bank, the account had received Rs 25 crore from one private bank and Rs 47 crore from another bank allegedly linked to the IDFC First Bank fraud. Fourteen transfers were subsequently made to a customer account, reportedly authorised by the concerned department. The account was closed on January 15, and Rs 25 crore along with interest was returned.
AU Small Finance Bank’s preliminary review indicated no evidence of internal fraud or financial loss to the bank. However, deposits from Haryana government entities declined sharply from Rs 735 crore on February 17 to Rs 538 crore on February 21, spread across approximately 200 accounts. This represents about 0.4 percent of the bank’s total deposits.
The bank confirmed that certain staff members have been placed off duty pending review and that it is cooperating fully with state authorities.
Market Reaction and Stock Impact
Financial markets reacted strongly to the de-empanelment decision.
On February 23, 2026, shares of IDFC First Bank fell by as much as 15 percent to Rs 70.98, while AU Small Finance Bank shares declined nearly 7 percent to Rs 957.35 amid heavy selling pressure.
The developments also weighed on the broader banking sector, contributing to volatility in the Nifty Bank index.
Reconciliation Drive and Next Steps
The Haryana government has directed all departments to complete reconciliation of their bank accounts by March 31, 2026, with consolidated reports to be submitted by April 4. Departments have also been instructed to ensure that surplus funds are parked in compliant fixed deposit instruments to optimise returns.
As of February 23, IDFC First Bank is scheduled to hold a stakeholder conference call to address concerns related to fraud recovery, compliance measures, and risk controls. The forensic audit by KPMG is underway, alongside an ongoing police investigation.
AU Small Finance Bank has reiterated its commitment to transparency and is engaging with the state government in an effort to seek clarification and potential re-empanelment.
No fresh fraud disclosures have been reported so far, but reconciliation and forensic scrutiny across affected accounts continue.
