What went wrong, and how did these transactions occur?
Certain employees of a branch in Chandigarh, most possibly in connivance with external parties, have fraudulently transferred these amounts to beneficiaries who had accounts outside IDFC First Bank, the details of which will emerge after investigation.
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Has the bank appointed a forensic auditor?
The bank is appointing KPMG to conduct an independent forensic audit to get to the bottom of this issue.
Were these transactions executed electronically or manually?
As per our preliminary assessment, the transactions were carried out using forged and fraudulent authorisation letters and cheques. So these are manual transactions done at the branch level.
What internal controls and checks are ordinarily in place for handling such government-linked accounts, and how were these bypassed or compromised?
The bank has necessary controls in place, including maker, checker and authoriser for clearing cheques or debit instructions from the department. We have been in operation for over 10 years and have rolled out over 1,000 branches and have had no such incident before. As part of the control process, the bank also sends periodic system-generated statements and communications to the registered customer IDs, including mobile alerts, SMS transaction alerts, monthly bank statements and monthly balance confirmation certificates. But in this case, it appears that connivance between the employees and third parties has led to the clearing of instruments, which in hindsight are appearing forged. Prima facie third-party entities are involved in this compromise.
Is the issue strictly limited to one branch in Chandigarh?
The issue is specific to one branch and one client group and is thus an isolated instance. There is no system-level issue. All branches of the bank are running smoothly.
Could the financial impact exceed ₹590 crore?
We have put out the number as we could best assess at this point of time. The financial impact would depend upon recoveries or any additional claims, but our best estimate is that this number is appropriate to the situation. As you know the bank is well capitalised, and profitability is on a positive trajectory because of falling credit costs and expected improvement in net interest margin during the fourth quarter, and hence, this number should be manageable.
What steps are the bank taking to recover the funds? What actions are being initiated against the individuals involved?
We are making efforts to trace the flow of funds and will seek appropriate restoration of funds where possible. The bank will pursue strict civil and criminal action against the perpetrators, internal or external, involved and responsible for this incident. We are determined to get to the root of this.While the initial impact has been assessed at ₹590 crore, the final financial implication will depend on further information, validation of claims and potential recoveries. These may include lien marking on suspected beneficiary accounts held with other banks, liabilities of other entities involved in the transactions and legal recovery proceedings. The bank has sent recall requests to certain beneficiary banks to mark liens on balances in suspicious accounts.
