Banks are tightening controls on transactions with major branches after the IDFC First Bank fiasco

Medium and small lenders may experience short-term consequences if government agencies park their money with state lenders | Photo credit: iStockphoto

“We plan to implement an explicit system for high-value transactions. For branch-based transactions that cross a threshold, we will require explicit confirmation through a verified digital channel or an app. We will also use AI. Currently, a branch manager physically processes checks, but we will implement a system where AI performs an initial check followed by human confirmation to better handle exceptions. This was a physical, manual check fraud – the most traditional form. We will improvise and introduce new controls,” said V Vaidyanathan, MD & CEO, IDFC First Bank.

A senior private sector banker said that after the revelation of IDFC First Bank, all banks are reviewing and auditing their internal controls, especially for high value transactions. “At the industry level, we are reviewing and upgrading the maker-checker system, extensively examining repeat transactions and adding several layers of authentication, apart from a confirmation call, to ensure the authenticity of the transaction,” said a senior private sector banker.

Impact on the industry

Sources said the Reserve Bank of India (RBI) is comfortable with the prompt disclosures and corrective actions taken by IDFC First Bank management following the occurrence of fraud and the central bank is unlikely to make any policy change for its branch-run operations. However, the supervisor can work bilaterally with the bank to identify the gaps and the individuals responsible for the fraud.

Another senior banker noted that medium and small lenders may experience short-term impacts in terms of government agencies parking their money with state-owned lenders. This trend is unlikely to continue for a longer period as public sector banks have also faced material fraud in the past and are relatively less agile than private banks in terms of technological infrastructure.

“The IDFC First Bank fraud appears to have arisen due to complicity between bank employees, third party brokers and possibly officials of the Haryana state government department. Banks can set up all the processes but when employees collaborate with third parties, it becomes difficult to detect fraud,” they said.

The banker noted that the banking sector earlier witnessed majority fraud on the advances side, but the fraud on the deposits side has increased in the last five years. These include mule account fraud, digital fraud, microdeposit fraud, check fraud, and account takeover fraud.

“A customer trusted her banker as much as she trusted her doctor. But over the past 10 to 15 years, bankers have lost that trust. Some are into quick money making schemes and often lose money by trading in risky instruments like F&O. Under severe indebtedness, they engage in fraudulent practices. Sometimes they trade in collusion with private individuals as we have seen in the case of IDFC, and sometimes they can transfer money from dormant accounts,” the banker said.

Published on February 24, 2026