The RBI Governor Sanjay Malhotra said there is no systemic issue around the Rs 590 crore fraud, as per a report by PTI. He added that the RBI is watching the development at IDFC First Bank.
“We are watching the development; there is no systemic issue,” Malhotra told in a press briefing after the customary post budget address by Finance Minister Nirmala Sitharaman to the Central Board of Directors of the Reserve Bank of India (RBI).
IDFC First Bank says fraud involved employee–external party collusion
In the conference call held earlier this morning, Managing Director and Chief Executive V Vaidyanathan said the fraud was the result of collusion between employees of IDFC First Bank and external parties.
IDFC First Bank, on Sunday, disclosed a Rs 590-crore fraud committed by certain employees and others at a particular branch in Chandigarh. This includes Rs 490 crore identified after reconciliation and an additional Rs 100 crore that was “self-identified” through internal checks, the MD said, indicating that the total amount of Rs 590 crore is unlikely to increase.
The bank said the fraud is “confined to a specific group of Haryana government-linked accounts” operated through the Chandigarh branch and stressed that it does not extend to other customers of the branch.
Profit impact likely limited: Vaidyanathan
Vaidyanathan added the bank will take some provisions as a result of the fraud and in line with its policies to recognise any stress upfront.
However, the same is unlikely to have a major impact on profits, he said, pointing out that wider net interest margins and credit costs will be of help. “So, on a standalone basis, we were expecting a very solid Q4 in terms of profitability,” Vaidyanathan said.
Vaidyanathan said the independent forensic audit by advisory firm KPMG is expected to conclude in 4-5 weeks.
“We appointed KPMG only yesterday (Sunday)… typically, to the best of my understanding, these processes could take about 4-5 weeks to conclude,” he said.
“We have put out this number as we could have assessed at this point of time, we don’t anticipate this to broadly move from here on,” Vaidyanathan said.
Recoveries and “employee dishonesty insurance” cover of Rs 35 crore could reduce the impact on the bank, he said.
Describing the episode as a case of “collusion” involving employees and external parties through forged physical cheque transactions, Vaidyanathan said the issue was confined to one branch, one client group, and asserted that there was no system reporting error.
Haryana govt deposits form just 0.5% of total deposits: Vaidyanathan
Vaidyanathan said deposits from the Haryana government account form about 0.5% of the bank’s total deposits, while overall government deposits, including central and state entities, constitute 8-10% of the deposit base.
Following the fraud disclosure, the Haryana government has de-empanelled IDFC First Bank for government business. The Bank said it has filed police complaints, informed regulators and auditors, and initiated recovery and lien-marking actions across the banking system.
IDFC First Bank share price
The share price of IDFC First Bank is still trading nearly 16% down in the intraday trade. The share price had fallen as much as 20% in early trade.