MUMBAI: Beneath the one-time profit hit from the ₹590 crore Chandigarh fraud, IDFC FIRST Bank’s March-quarter (Q4FY26) earnings revealed a deeper concern: deposit growth slowed sharply after the incident dented depositor confidence.
The private sector lender’s customer deposits rose just 1% sequentially during Q4 to ₹2.84 trillion, even as Indian banking sector deposits rose 13.5% year-on-year (y-o-y) to ₹262.3 trillion during the per, up from 10.3% growth a year earlier, according to Reserve Bank of India data.
“We saw an increase in total deposits by about 16.8% on a YoY basis…The growth was modest at 1% during the quarter…There was also an impact of the one-off fraud incident, which occurred during the quarter,” chief financial officer Sudhanshu Jain had said during the bank’s post-earnings analyst call on 25 April.
On 23 February, the lender disclosed a ₹590 crore fraud at its Chandigarh branch, where employees carried out unauthorized transactions in accounts linked to the Haryana government, creating a deposit balance discrepancy. The bank has since paid the state government ₹590 crore, suspended the employees involved and filed police complaints against them.
During earnings call, the bank said it had fully expensed the impacted amount in Q4FY26 and was “reasonably certain” no further material financial adjustments would be required beyond those already recognized.
Stock pressure
While IDFC FIRST Bank was not accused of direct wrongdoing, the incident triggered reputational concerns and weighed on deposit flows during the quarter. Since the fraud surfaced on 22 February, shares of the lender have fallen as much as 20%, compared with a 12.5% fall in Nifty Bank.
“We believe the recent headwinds have put the stock under pressure and have impacted investors’ confidence, and rerating hereon will be gradual and contingent of confluence of earnings and asset quality outcomes,” Elara Securities had said in a report on 26 April. The brokerage has cut its earnings per share estimate by 6.5% for FY27 and 3.5% for FY28 and a target price by 13% to ₹78.
Jain said the fraud episode came alongside several macro pressures. “There was also tight liquidity, which prevailed through the quarter. There was advanced tax outflows and also, of course, the West Asia crisis. This all, I think, in conjunction, had some impact on the deposit flows,” he said.
Chief executive officer V. Vaidyanathan acknowledged that deposit growth had effectively stalled during the quarter amid multiple adverse events.
The bank’s low-cost current account and savings account (Casa) deposits fell 2.5% sequentially. Casa deposits stood at 49.8% at the end of March, higher than 46.9% a year earlier but lower than 51.6% in the previous quarter.
The bank’s cost of funds declined to 6.00% from 6.11% in the previous quarter and 6.50% a year earlier. Cost of deposits also fell to 5.93% in the March quarter from 6.07% in the preceding quarter.
Vaidyanathan said he expects deposits to grow around 5% sequentially going forward.
IDFC FIRST Bank reported a net profit of ₹319 crore for the quarter, up 4.9% year-on-year but down 36.5% sequentially, reflecting a one-time post-tax impact of ₹483 crore related to the fraud.
Effective 21 April, the bank increased savings account rates by 50-150 basis points on balances above ₹3 lakh and up to ₹25 crore to 6.00-6.50% to strengthen deposit mobilization after the fraud episode, even as several other banks were cutting rates.
“System-wide deposit growth has remained relatively subdued over the past few years, and the outlook suggests that deposit mobilisation may continue to remain challenging in the near to medium term. This pressure has been particularly pronounced for relatively younger banks that are still in the process of building a stable and granular retail deposit franchise,” Prakash Agarwal, partner at Geofin Capital said.
In such a phase, these institutions are often required to offer relatively higher deposit rates in order to attract and retain customers. The comparatively higher rates offered by entities such as IDFC FIRST Bank and certain other new-age private banks should therefore be viewed in this light, Agarwal said.
Year-on-year, however, the bank’s total deposits grew 17% to ₹2.94 trillion. The bank also said customer acquisition trends remained resilient despite negative headlines surrounding the fraud incident.
According to the its investor presentation, IDFC FIRST Bank has spent the past seven years building a retail-focused deposit franchise after transitioning from an infrastructure-heavy lender.