IDFC First Bank Rout Wipes Out ₹14,000+ Cr in a Day; Institutional Portfolios Take a Hit

Shares of IDFC First Bank witnessed a sharp sell-off on Monday, plunging 20% to an intraday low of ₹66.85, after the lender disclosed a ₹590-crore fraud linked to accounts operated out of its Chandigarh branch. The fall triggered a massive erosion in shareholder wealth. It disproportionately impacted institutional investors, including the Government of India and LIC.

The stock hit the lower circuit soon after markets opened, thus, showing investor anxiety over internal controls and governance standards rather than the absolute size of the fraud itself.

₹14,000-Cr Market Capitalisation Wiped Out in a Session

The single-day collapse resulted in a loss of over ₹14,000 crore in market capitalisation, a figure nearly 24 times the value of the fraud under investigation. This divergence shows how markets penalise governance lapses in financial institutions, even when capital adequacy remains intact.

IDFC First Bank’s valuation stood significantly below its recent highs, placing it among the worst-performing banking stocks of the year.

Government, LIC Bear the Brunt of the Fall

The sell-off had a direct impact on large shareholders. The Government of India, which holds about 7.75% stake in the bank, saw the value of its investment decline by approximately ₹1,100 crore in a single trading session. Similarly, the Life Insurance Corporation of India (LIC), with a holding of roughly 2.35%, witnessed an erosion of nearly ₹340 crore. Retail investors, who together own close to 28% of the bank, are estimated to have suffered a combined notional loss of over ₹4,000 crore.

According to the bank’s disclosure, the issue relates to unauthorised and suspected fraudulent transactions aggregating ₹590 crore, linked to government-related accounts managed at its Chandigarh branch. The discrepancies came to light during internal reconciliation after instructions were received to close certain accounts and transfer balances.

IDFC First Bank has suspended four employees, initiated a forensic audit, filed complaints with law-enforcement agencies, and informed statutory auditors. The bank has also taken steps to secure potential recoveries by placing liens and seeking reversals where possible.

JP Morgan Flags Governance Overhang

While the immediate market reaction was severe, brokerages have sought to quantify the actual financial damage. Nomura estimates that the ₹590-crore amount under review represents about 28% of the bank’s projected FY26 profit, flagging earnings risk if recoveries are delayed.

UBS has pegged the potential impact at around 22% of FY26 profit, but noted that the hit to net worth is likely limited to about 1%, given the bank’s capital buffers. Meanwhile, Morgan Stanley estimates that the fraud could shave off nearly one-fifth of annual profit before tax, while emphasising that the issue appears operational rather than systemic.

JPMorgan has highlighted that while IDFC First Bank’s balance sheet strength and growth trajectory remain intact. The episode introduces a governance overhang that could weigh on valuations in the near term. The brokerage pointed out that markets typically assign a higher risk premium to lenders facing control-related lapses, regardless of recovery prospects.

The incident comes despite a strong recent financial performance. In the December quarter, IDFC First Bank reported a 48% year-on-year rise in net profit to ₹503 crore, alongside 24% growth in deposits. However, investors chose to discount near-term earnings momentum, focusing instead on execution and oversight risks.

Following the disclosure, the Haryana government moved to de-empanel IDFC First Bank from government business. The government also instructed departments to shift balances and reconcile accounts. While the RBI has indicated that the episode does not pose systemic risk, it continues to monitor developments closely.

Also read: Rs 590 Crore Fraud: IDFC FIRST BANK Management Responds