Reserve Bank of India Governor Sanjay Malhotra sought to calm market jitters over a recently disclosed fraud in IDFC First Bankstating that the incident “does not pose any systemic risk” to the country’s banking sector. Speaking amid intense scrutiny, Malhotra stressed that Indian banks remain well capitalized and resilient.

“Banks have enough capital with them. The capital adequacy is 17%, while the requirement is 11.5%,” he said on February 23, adding that the central bank is monitoring developments but would not comment on details of the lender’s internal investigation.

The reassurance came as the bank’s shares fell 20% in early trade after it reported a Rs 590 crore fraud allegedly carried out by certain employees along with third parties in accounts linked to the Haryana government.

The stock fell to ₹66.85 from the previous close of ₹83.56, touching the lower limit of the circuit and dragging the lender’s market capitalization to ₹58,259 crore.

Fraud linked to a specific branch

In a regulatory filing, the bank said the suspected irregularities were traced to a specific branch in Chandigarh involving a “specific set” of accounts for the Haryana state government and potentially other counterparties.

“Prima facie, unauthorized and fraudulent activities have been carried out by certain employees,” the filing states.

The lender said four officials have been suspended pending the investigation, adding that it would pursue “strict disciplinary, civil and criminal action” against those responsible. To look into the matter independently, the bank has appointed KPMG to conduct a forensic audit.

Separately, the Haryana government has debarred both the lender and AU Small Finance Bank from running government business with immediate effect until further notice. An official circular said no government funds would be parked, deposited, invested or invested through the two institutions during this period.