The ₹590 crore fraud at IDFC First Bank’s Chandigarh branch — involving Haryana government accounts, collusive employees, and forged transactions — has become the most closely watched banking incident of early 2026. While RBI Governor Sanjay Malhotra promptly assured that there is “no systemic issue,” the episode has triggered a multi-agency investigation, a KPMG forensic audit, and a political response in Haryana. This CMA Knowledge special report provides a complete, 6000‑word walkthrough of every aspect, with direct links to official statements, exchange filings, and verified news sources. It is designed for finance professionals, CA/CMA students, and analysts who need depth without speculation.

1. Chronology of the Fraud: From Mismatch to Nationwide Attention

The sequence is critical to understand the control lapses. Based on IDFC First Bank’s exchange disclosure (BSE filing summary) and subsequent clarifications by MD V. Vaidyanathan, the fraud unfolded as follows:

• February 16–17, 2026: Haryana’s Development and Panchayat Department requests closure of its account at IDFC First Bank’s Chandigarh branch to shift funds. The physical balance stated by the department differs from the bank’s books by nearly ₹300 crore.
• February 18, 2026: Haryana Finance Department issues an immediate de‑empanelment order against IDFC First Bank and AU Small Finance Bank (order referenced). All government departments are told to close accounts.
• February 19–20, 2026: Internal bank team, along with a retired DGP-level officer on the board, conducts a deep dive. They identify 391 suspect transactions across ~170 accounts, totalling ₹590 crore. The modus operandi: collusion between four employees (two suspended, two absconding) and external parties using forged physical cheques.
• February 21, 2026 (late night): IDFC First’s audit committee and board meet; fraud is quantified and disclosed to the stock exchanges.
• February 22, 2026 (Sunday): Public announcement made; shares plunge 20% on Monday. The bank appoints KPMG as forensic auditor (CNBC TV18).
• February 23, 2026: RBI Governor’s press briefing after FM’s address – “no systemic issue.” Haryana CM announces Special Investigation Team (SIT) and FIR under PC Act & BNS (Tribune).
• February 24, 2026: Investigators reveal 170+ accounts, 391 suspect transactions; one employee may have fled the country (Indian Express).

2. How the ₹590 Crore Was Siphoned: Forged Cheques & Employee Collusion

Unlike digital payment frauds, this case exploited old‑fashioned physical cheque processing. According to V. Vaidyanathan’s interview (FE), the fraud involved:

• Fake cheques resembling government warrants – beneficiaries were shown as vendors of Haryana departments, but the accounts were controlled by the accused.
• Bypassing dual authorisation – the four employees, including a branch operations head, overrode the maker‑checker system.
• Gradual siphoning – the oldest fraudulent transaction dates back to May 2025, indicating a 9‑month window. The total exposure of ₹590 crore represents about 0.4% of the bank’s deposit base.
• Immediate lien marking – the bank has frozen ₹70 crore in beneficiary accounts with other banks and initiated insurance claims under its employee dishonesty cover (₹35 crore).

2.1 List of government departments affected

As per The Indian Express (Feb 24), the primary departments are: Development and Panchayat, Urban Local Bodies, Municipal Corporation Panchkula, Haryana Pollution Control Board. All had nodal accounts at the Chandigarh branch.

3. RBI’s Stance: Monitoring, Not Panic – What “No Systemic Issue” Really Means

Governor Malhotra’s concise statement carried layered meaning. In banking regulation, a “systemic issue” would imply contagion risk – potential failure of a major institution or spillover to the payment system. Given that IDFC First has a total asset base of ₹2.7 lakh crore and the fraud is isolated to one branch’s government accounts, the RBI classified it as an operational risk event. However, the central bank has:

• Deployed a supervisory team for a targeted audit of the Chandigarh branch and the bank’s government business vertical.
• Asked for a copy of the KPMG forensic report within 45 days.
• Reviewed the bank’s board-approved fraud risk management policy – no immediate penalty but will likely issue an advisory to all banks on government account reconciliation.

For full RBI press briefing notes, refer to Economic Times (Feb 23) and upcoming official RBI transcript.

4. Haryana Government’s Response: De‑empanelment, High‑Level SIT, and FIR

On February 18, even before the public disclosure, Haryana’s finance department issued a de‑empanelment order against IDFC First and AU Small Finance Bank (the latter later clarified it had no fraud). The order, accessible via FE report, directed all departments to close accounts by February 24. Chief Minister Nayab Singh Saini, in a special assembly session on February 23, announced:

• FIR under Prevention of Corruption Act, 1988 (Section 13(2)) and relevant sections of Bharatiya Nyaya Sanhita (BNS) 2023 – Sections 316(5) (criminal breach of trust by public servant), 318(4) (cheating), 336(3) (forgery), 338 (making false document), 340(2) (using forged documents), 61(2) (criminal conspiracy). (Tribune link)
• An SIT comprising three senior IAS officers and one IPS officer to oversee the investigation and recovery.
• Absolute assurance: “Haryana ka har paisa safe hai, har single paisa wapas aayega.” (Every rupee of Haryana is safe, every single rupee will be recovered).

The Haryana government also flagged that it had not received any monthly statement of accounts from IDFC First for the past three months in that branch – a serious reconciliation lapse that the forensic audit will examine.

5. KPMG Forensic Audit: Mandate, Timeline, and Key Focus Areas

IDFC First’s board appointed KPMG on February 22, 2026. According to CNBC TV18, the audit will cover:

• Transaction reconstruction – complete trail of the 391 suspect transactions.
• Employee involvement – digital forensics on emails, access logs, and CCTV footage of the branch.
• Beneficiary account analysis – linking shell entities to the accused.
• Systemic gaps – why dual control failed and why reconciliation with Haryana’s treasury was not done for months.

The audit is expected to conclude in 4‑5 weeks (by late March). The report will be shared with the bank’s audit committee, RBI, and likely investigative agencies.

6. Comparative Context: How IDFC First Fraud Stacks Up Against Past Frauds

The IDFC fraud is relatively small in systemic terms but significant as a test of private banks’ control over government business. Unlike PNB, there is no letter of undertaking (LoU) chain; hence contagion is avoided.

7. Financial Impact: Provisions, Capital Adequacy, and Investor Reaction

IDFC First Bank’s Q3 FY26 net profit was ₹503 crore. The ₹590 crore fraud exceeds quarterly profit, meaning the bank will likely need to make a provision of at least 25-30% initially (as per RBI norms) – roughly ₹150‑180 crore, which will hit Q4 earnings. However, the bank’s CET‑1 ratio is strong at 14.2% (Dec 2025); impact is ~15‑20 bps. Recovery prospects: the bank has identified assets worth ₹70 crore frozen; employee insurance ₹35 crore; remaining may be recovered through sale of fraudster properties and legal process. On February 23, shares closed 15.5% lower at ₹70.52, but recovered 3% next day as RBI assurance sunk in. CNBC TV18 analysis suggests limited long-term damage if KPMG report does not reveal deeper governance failure.

8. Legal Framework: Understanding the FIR Sections

The FIR lodged by Haryana Vigilance Bureau includes:

• Section 13(2) read with 13(1)(d) of PC Act, 1988 – criminal misconduct by a public servant (if any government official is found complicit).
• BNS 2023 sections: 316 (criminal breach of trust by public servant, or by banker/merchant), 318 (cheating), 336 (forgery), 338 (making false document), 340 (using forged documents), 61 (criminal conspiracy). The inclusion of BNS reflects the new criminal code; earlier IPC sections 409, 420, 467, 471, 120B are now replaced accordingly.

Additionally, the RBI may consider penal provisions under the Banking Regulation Act, 1949, for any supervisory lapses. No show‑cause notice has been issued yet.

9. Expert Commentary: What Former Regulators Say

10. Road Ahead: Expected Regulatory and Policy Actions

• RBI supervisory letter: likely to be issued to IDFC First with directions to strengthen reconciliation mechanisms, especially for government accounts.
• Master Direction on Frauds – possible amendment: may mandate banks to implement daily account reconciliation for all government clients.
• Impact on government business: other states may review which private banks they use for treasury operations.
• Forensic audit conclusions: If KPMG finds willful negligence, the RBI can impose monetary penalty or even restrict branch expansion.

11. Takeaways for CMA, Internal Auditors, and Finance Executives

This case underscores several audit and control principles:

• Reconciliation frequency: high‑volume government accounts must be reconciled at least weekly, not quarterly.
• Segregation of duties: the maker‑checker override is a red flag; biometric logins with periodic rotation can mitigate.
• Fraud risk assessment: banks need to treat government business as high‑risk and conduct surprise verifications.
• Board oversight: the audit committee must review large unreconciled differences monthly.

12. Verified Source Links (Click to Validate)

Disclaimer: This article is compiled from publicly available official statements, exchange filings, and verified news reports as of February 24, 2026. All hyperlinks lead to primary sources. For the latest RBI updates, visit rbi.org.in. CMA Knowledge provides this for educational and professional reference.