Haryana De-empanels IDFC First and AU Small Finance Bank

New Delhi, February 23, 2026: In a significant move aimed at safeguarding public exchequer, the Haryana government has de-empanelled IDFC First Bank and AU Small Finance Bank from conducting any state government business. The decision, effective immediately, comes in the wake of a reported ₹590-crore fraud and systemic irregularities in the management of government deposits.

The Finance Department of Haryana issued an official circular directing all state departments, boards, and corporations to cease transactions and close their existing accounts with these two private lenders.

The Catalyst: ₹590-Crore Fraud Detection

The primary trigger for this drastic step was a disclosure by IDFC First Bank regarding unauthorized and fraudulent activities at its Chandigarh branch.

• The Discovery: The discrepancy came to light when a Haryana government department requested to close its account and transfer the balance to another bank. The bank noticed a significant mismatch between the actual balance and the records provided by the department.
• The Scope: Preliminary investigations suggest the fraud involves approximately ₹590 crore. The bank has stated that the issue appears confined to a specific set of government-linked accounts and does not affect individual retail customers.
• Action Taken: IDFC First Bank has suspended four employees, filed a police complaint, and appointed KPMG to conduct an independent forensic audit. The case has also been referred to the Haryana Crime Branch.

Allegations Against AU Small Finance Bank

While the massive fraud was linked to IDFC First Bank, AU Small Finance Bank was also de-empanelled following reports of “suspected unauthorized transactions.”

In a regulatory filing on February 22, 2026, AU Small Finance Bank clarified that it had received inquiries from the state regarding specific government accounts. While the bank maintains that its preliminary review shows no financial impact or internal fraud, the state government opted for a “precautionary” de-empanelment. AU Bank has also placed certain employees “off-duty” pending a full review to ensure transparency.

Systemic Lapses and Financial Loss

Beyond the fraud, the Haryana Finance Department highlighted broader concerns regarding how private banks handle state funds:

1. Interest Discrepancies: The government noted that banks were allegedly ignoring instructions to place surplus funds into high-interest flexible deposits or FDs. Instead, funds were kept in low-interest savings accounts, leading to substantial financial losses for the state.
2. Lack of Reconciliation: It was revealed that many departments were not performing monthly reconciliations of their bank statements, which allowed irregularities to go undetected for extended periods.
3. New Mandate: In a major policy shift, Haryana has now directed all its entities to maintain banking relationships exclusively with Public Sector Banks (PSBs). Any department wishing to open an account with a private bank now requires specific, justified approval from the Finance Department.

Directives for State Departments

The state government has set a strict timeline for the transition:

• Immediate Action: Departments must transfer all balances and initiate the closure of accounts with IDFC First and AU Small Finance Bank.
• Deadline: All government bodies are required to reconcile their bank accounts strictly as per new guidelines by March 31, 2026.
• Compliance: A certified compliance report must be submitted to the Finance Department by April 4, 2026.

Market Reaction

The news sent ripples through the financial markets on Monday morning. Shares of AU Small Finance Bank plummeted nearly 8% in intraday trading, while IDFC First Bank also saw a significant dip as investors weighed the reputational and financial risks of the de-empanelment.

The Haryana government’s move serves as a stern warning to financial institutions regarding the management of public funds and highlights the increasing preference for nationalized banks in the state’s fiscal architecture.