IDFC Bank appoints KPMG for forensic audit, says bank will continue to be profitable

MUMBAI: IDFC First Bank said it will stay profitable even after provisioning for Rs 590 crore in fraudulent transactions in Haryana Govt-linked accounts, triggered by employee collusion at its Chandigarh branch. Shares fell 16% on Monday after the disclosure on Saturday. On a conference call, chief executive V. Vaidyanathan said the bank has appointed KPMG for a forensic audit and holds employee-fraud cover of up to Rs 35 crore.Bank officials said the suspected fraud stemmed from forged cheque transactions cleared at the branch. “This is a specific isolated incident that happened in one branch with one client group,” Vaidyanathan said, adding it is confined to “a particular branch in Chandigarh and is confined to a limited set of Haryana government linked accounts.”He ruled out a digital breach. “This is not a digital transaction. This is a physical transaction where the checks have been forged. This is the oldest kind of fraud probably known to banking,” he said.Debit instructions purportedly came from the client and were processed at branch level. “This looks to us on the basis of the work we've done clearly a case of an employee fraud. And it also our internal fingerprints and our details are quite clear that external parties are also involved here,” he said. Funds moved to beneficiary accounts outside the bank, “expected to be suspicious,” with other banks cooperating on recovery.He said maker-checker-authoriser controls, positive pay, high-value checks, SMS alerts and monthly statements were in place. Yet collusion cut through controls. “The issue in this case is that many of these people connived in making it happen.”The bank pegged total impact at Rs 590 crore, Rs 490 crore flagged after balance confirmations and Rs 100 crore added to the amount after its own review. “We have put out this number as we could best assess at this point of time. But we feel that the number is broadly appropriate to the current situation,” Vaidyanathan said. He said the Rs 100 crore buffer was deliberate. “We have proactively done extra work, proactively identified extra accounts, proactively put 100 crores into it,” adding the bank did not want to “postpone things” or “leak the market with more and more news.” Management said Rs 590 crore is the outer estimate for now.The bank suspended suspected staff. “All employees whom we currently suspect have been suspended,” management said. It appointed KPMG. “We have and appointed a forensic auditor for this KPMG and we will expect them to move in great diligence and move very fast,” Vaidyanathan said, estimating “four to five weeks to conclude.” It filed police complaints and began recovery/lien-marking across the system. “We will spare no one and we will take it as it comes,” he said.Provisions will follow. “Please assume that we will take certain provisions for this,” Vaidyanathan said, adding, “Despite this hit, if we were to take one, we still expect to be profitable.”