The ₹646 crore fraud at IDFC First Bank’s Chandigarh branch prompted an unusually direct response from the lender’s top management, with managing director and chief executive V. Vaidyanathan flying to the city the same day the incident became public to meet senior administrative officials and assure them the bank would do the right thing.
“Since the matter was serious, I personally flew to Chandigarh the same day and met senior administrative officials. I assured them of the Bank’s bona fides, our culture and our commitment to doing the right thing,” Vaidyanathan wrote in his letter to shareholders in the bank’s annual report for fiscal year 2026 (FY26), released on Sunday.
He said the officials appreciated the bank’s swift response and its willingness to accept responsibility where its own employees were involved. He also said senior officials later wrote to the bank in appreciation, with one remarking that they had known of AAA banks, those with the highest credit rating and lowest risk of default, by financial strength, but that this was the first they had seen that was AAA by moral conduct.
The fraud, discovered in February 2026, involved employees at a single Chandigarh branch colluding with customer representatives and outsiders. Vaidyanathan devoted a section of his letter to the episode, saying plainly that it should not have happened.
Controls bypassed
The incident exposed the limits of even a technologically advanced control framework when multiple parties collude, Vaidyanathan said. The bank uses machine-learning models to monitor accounts and transactions, but in this case, several parties acted together to circumvent controls already in place.
The fraud was disclosed late on 21 February, a Saturday, with the bank holding an analyst call at 8 am the following Monday. Vaidyanathan said the bank compensated the affected counterparty within the same working day, on a matter of principle, rather than waiting for a lengthy investigation because its own staff were involved.
Mint reported earlier that a forensic review by KPMG, code-named Project Ultra, had reaffirmed that the fraud was confined to the Chandigarh branch. The review found that the modus operandi involved collusion between branch employees, certain employees of the customers and certain individuals outside the bank.
To push through unauthorized transactions, branch staff at the time attached potentially modified authorisation letters, cheques and approval emails to transaction vouchers, with signature inconsistencies seen in some cases, according to the report.
In certain instances, non-existent fixed deposit advices, edited interest certificates and modified account statements were then shared with customers.
The discrepancy surfaced in February when a Haryana government department sought to close its account and move the funds elsewhere, only to find that the balance differed from what the account holder believed it to be.
The Warburg Pincus-backed lender has said it was a victim of the fraud and is working with investigative authorities. It paid the amount, along with applicable interest, to the departments concerned and recognized the cost in its books in the March quarter of FY26.
Damage to earnings
Vaidyanathan said core banking records remained accurate throughout. The bank subsequently conducted a nationwide verification exercise, sending statements of closing balances as of 28 February 2026 to all relevant government and trust, association, society and club account holders across India. No other customer reported a discrepancy.
The bank has since added controls, including oversight by a centralised team on top of branch-level authorisation, as well as changes to how it communicates with customers.
The financial cost of the fraud was reflected in the bank’s annual results. Net profit for FY26 rose 7% from a year earlier to ₹1,636 crore, which Vaidyanathan described as underwhelming. Without the fraud, he said, profit would have been ₹2,119 crore, a 39% increase.
Deposits held firm through the episode, Vaidyanathan said, even as the bank cut savings-account rates around the same time.
Radhika Goyal is Author of Taxconcept Gurugram head office, for deeply reported tax, gst and income tax articles on issues that matter. He splits her time between New Delhi and Bengaluru, and has worked as a reporter, a podcaster and an editor for publications across India.