 "'No systemic issue': RBI on Rs 590-cr IDFC First Bank fraud as shares crash 16%; CEO vows action")
Shares of IDFC First Bank plunged nearly 16 per cent on Monday after the lender disclosed a Rs 590-crore fraud at its Chandigarh branch. The stock was trading at Rs 70.18 on the BSE around noon, down 16.17 per cent, after hitting an intraday low of Rs 66.85.
The sharp sell-off followed the bank’s exchange filing late on February 21 flagging unauthorised transactions allegedly carried out by some employees in collusion with other entities. The amount involved — nearly a fourth of the bank’s annual net profit — has raised concerns over the potential financial and governance impact.
RBI says no systemic risk
Reacting to the development, Reserve Bank of India Governor Sanjay Malhotra sought to calm nerves, asserting that the issue does not pose broader risks to the banking system.
“We are watching the development, there is no systemic issue here,” Malhotra said on Monday.
He added that banks remain well-capitalised. “Banks have enough capital with them. Capital adequacy is 17 per cent while the requirement is 11.5 per cent,” he said.
CEO calls it ‘isolated incident’
In an interview with Moneycontrol, Managing Director and CEO V Vaidyanathan described the episode as an “isolated incident” and the first major operational setback in a decade.
“We will take necessary corrective actions on this. We will learn from this and we will fix the necessary issues,” Vaidyanathan told Moneycontrol, asserting that the bank’s long-term growth trajectory remains intact.
On the financial implications, he said the lender expects to absorb the impact. “The bank’s profitability in terms of net interest margin is increasing and we expect the credit cost to come down this quarter… We feel that we’ll be able to absorb this,” he told Moneycontrol.
However, he refrained from committing to a timeline for provisioning, noting that it would depend on recoveries and legal advice. “We can’t comment on the timing because it depends on a number of factors such as possible recovery or claim made. Much of it will also depend on the legal stand on the matter,” he told Moneycontrol.
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View AllThe bank has appointed KPMG to conduct an independent forensic audit to determine the extent of lapses and identify accountability. The fraud could involve “other individuals/entities/counterparties”, the lender said in its earlier disclosure.
Vaidyanathan also sought to reassure investors on governance standards, stating that marquee backers, including private equity firm Warburg Pincus, remain supportive.
“Investors have always supported us and told us that you build a good business, this moment will pass, let’s look ahead. They know us for over a decade, trust us and appreciate our capability to build long term businesses with good governance,” he told Moneycontrol.
Despite management’s assurances that the bank is “fundamentally on a very strong footing” and poised for the next phase of growth, Monday’s steep correction signals that the Street is pricing in near-term uncertainty as the forensic audit and regulatory scrutiny unfold.
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