In today’s Finshots, we break down what went wrong at IDFC First Bank and what this fraud means for private banks in India.

The Story

Transferring money today feels almost effortless. You pull out your phone, open your bank or UPI app, tap a few buttons and voila! Money sent.

Cheques feel like relics from another era. And in many ways, they are because less than 3% of all transactions in India happen through cheques.

And yet, this tiny, almost-forgotten payment instrument managed to trigger a massive ₹590 crore fraud at one branch of IDFC First Bank.

But before we go further, here’s something you should know. According to a statement by the Chief Minister of Haryana, about ₹556 crores of the fraudulently transferred money has already been recovered.

But there are still a few questions about how a fraud of such scale even happened.

To begin with, a few days ago, the Haryana government noticed something odd in the bank accounts it and its departments maintained with IDFC First Bank’s Chandigarh branch. Instructions to park surplus funds in higher interest fixed deposits weren’t being followed. Instead, money was sitting idle in savings accounts, costing the government interest income.

That raised eyebrows. So they asked for detailed bank statements. And that’s when things got serious. The balances reflected in the bank statements didn’t match what the government believed should be there.

Soon after, the government issued a circular de-empanelling IDFC First Bank and AU Small Finance Bank for government business. Departments were simply told to stop transacting through these banks, close their accounts, and move funds elsewhere.

But when departments began closing accounts, they discovered that the balances still didn’t tally. Preliminary findings suggested that bank employees had allegedly used forged cheques to siphon off money to accounts outside the bank.

The total as you already know was about ₹590 crores.

Which brings us back to the uncomfortable question — how did this even slip through?

See, you may barely use cheques as a payment mode right now because digital payments have replaced most physical systems for retail transactions. But that’s just retail.

For large business and government transactions, cheques still play a meaningful role. Because these accounts aren’t owned by one individual. They belong to institutions. And moving money out of such accounts usually requires multiple layers of authorisation.

Now sure, all of this can be done digitally today. In fact, digital systems are often safer, especially when multiple approvals are needed. But many government departments, particularly those spread across rural areas or places where physical processes are more familiar, still rely heavily on cheques.

So think about what happens when you walk into a bank and say, “Hey, transfer money from my account to another.” In effect, you’re handing over a cheque signed by someone authorised to operate that account.

Now, if that cheque carries a large amount, the banker doesn’t just process it blindly. They confirm with other authorised signatories. And if the amount exceeds the banker’s own approval limits, they escalate it to someone senior within the bank.

This layered process is called the maker-checker system. One person or the “Maker” initiates the transaction. And another independent person or the “Checker”, reviews and approves it. It’s a dual-control, four-eyes principle designed to prevent fraud, reduce errors, and ensure compliance.

But if you look closely at what the Chief Minister of Haryana said, he was very specific. He mentioned that some “middle and lower-level employees” at the bank’s Chandigarh branch colluded to siphon off the money using forged cheques and transferred it to unknown accounts.

Now think about that for a second.

Siphoning off hundreds of crores isn’t easy. Large transfers don’t just sail through a bank without higher-level approvals. It’s hard to imagine that amounts of this scale could move without someone senior knowing.

And then there’s the other side of the story — the government departments themselves. These are not tiny private accounts. Government departments reconcile their books periodically. If money was being transferred without authority, how did no one notice? If reconciliations weren’t happening properly, that points to serious lapses in accounting.

Now you could argue saying, “Maybe they were small amounts siphoned off slowly over time.” But that seems unlikely too as departments typically review accounts every quarter. Which suggests that these transfers may have happened over a short span.

All of this raises an uncomfortable possibility — that beyond the so-called “middle and lower-level” employees, others may have been involved. Yet the ones facing action appear to be those who executed the transfers, and not necessarily those who authorised them.

Now, a lot of this is still a question mark. But step back for a moment and ask — what does a fraud of this scale actually do to a private bank like IDFC First Bank?

For starters, the Haryana government has ordered all its departments, boards and PSUs to shut their accounts with IDFC First and AU Small Finance Bank and move their funds elsewhere. Around ₹200 crores has already left. But since Haryana government deposits make up roughly 0.5% of IDFC First Bank’s total deposits, that could mean as much as ₹1,400 crores walking out the door.

And that isn’t a paltry sum. Banks are already dealing with tight liquidity. If you’ve read our recent story on SBI’s recent results, you know that loan demand has been strong for banks, but deposit growth hasn’t kept pace. That’s where the Credit-Deposit (CD) ratio comes in. It measures how much of a bank’s deposits are being used to fund loans. And it’s a key indicator of liquidity and balance sheet health. A ratio over 80% shows aggressive lending and potential liquidity risks. And although IDFC First Bank’s CD ratio has fallen from 134% pre-pandemic to 93% now, it’s still a risky number.

Because low-cost deposits like savings and current accounts (CASA) haven’t grown meaningfully, and have even declined by 5–6% post-pandemic, and banks have leaned more on fixed deposits. Those cost more. And higher funding costs squeeze profit margins.

So when cheap government deposits start moving out, it hurts more than it would have five years ago.

Besides, government bodies and PSUs still account for 8–10% of deposits in many banks. So if others decide to follow Haryana’s lead and shift funds to larger or public sector banks, smaller private banks like IDFC First could find themselves scrambling to gather deposits just to keep up with loan demand.

So yeah, this is sort of a strange situation that the bank has put itself, and probably other banks in. And for all we know, now that the money has been recovered very quickly, in just 24 hours (which again is good, yet very strange), this doesn’t seem like a story that will continue doing the rounds in the news. Just like how every sensational story is talked about one day and forgotten the next when something more interesting takes its place. So we may never really know for sure how or what exactly happened at IDFC First Bank.

But if we do, then that’s definitely a story for another day.

Until next time…

If this story made you question the strange fraud at IDFC First Bank, share it with a friend, family member, or even curious strangers on WhatsApp, LinkedIn, and X.

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