IDFC First Bank Limited (NSE: IDFCFIRSTB) Q3 2026 Earnings Call dated Feb. 23, 2026
Corporate Participants:
V. Vaidyanathan — Managing Director & Chief Executive Officer
Sudhanshu Jain — Chief Financial Officer
Saptarshi Bapari — Head – Investor Relations and ESG
Analysts:
Kunal Shah — Analyst
Piran Engineer — Analyst
Unidentified Participant
Param Subramanian — Analyst
Prakhar Sharma — Analyst
Subir Sen — Analyst
Nitin Aggarwal — Analyst
Deepak Gupta — Analyst
Jayant Kharote — Analyst
Siva Natarajan — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Conference Call of IDFC First Bank on Recent Developments. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. Please note that this conference is being recorded.
I now hand the conference over to Mr. V. Vaidyanathan. Thank you and over to you sir.
V. Vaidyanathan — Managing Director & Chief Executive Officer
Good morning, everybody this is Vaidyanathan.
Sudhanshu Jain — Chief Financial Officer
Good morning, everyone I’m Sudhanshu Jain.
Saptarshi Bapari — Head – Investor Relations and ESG
Hi good morning, everyone this is, Saptarshi.
Sudhanshu Jain — Chief Financial Officer
Yeah maybe I’ll before I invite Mr, Vaidyanathan maybe I’ll just give a brief synopsis of the matter. We did made a press release on February 21, but just for context, I will just lay out the issue once again. This matter pertains to a particular branch in Chandigarh and is confined to a limited set of Haryana government-linked accounts. The main issue which we have observed here is that certain employees of these branch, most possibly in connivance with external parties, have fraudulently transferred these amounts to beneficiaries who had accounts outside of our bank.
These is also– these accounts are also expected to be suspicious, these were could be done in connivance with third-parties. The details of which will emerge post the forensic audit which we have initiated with KPMG and further investigations by-law enforcement agencies and so on. We can assure that the bank has acted very swiftly and decisively to handle this matter. The all employees whom we currently suspect have been suspended. There is no senior management involvement in the entire incident as far as we understand currently.
We have conducted proper fraud management committee meetings, Board and Audit Committee meetings. As I said, KPMG has been appointed to do the audit. We have kept regulators informed– auditors informed of this matter. We– in terms of actions, we have already filed police complaints and we are engaging with other law enforcement agencies. We have also initiated recovery and lean marking actions across the banking system. So, these are certain actions which have already taken.
We have existing controls in-place, of course, in light of the incident, we will try to enhance certain more controls as we sort of move along but I can assure you that this issue is confined to only this branch. There is no impact as such on any other customer or any other branch, which has come to notice. In terms of financial impact, the discrepancy currently found is about INR490 crores. We have additionally– where we have received, I would say certain reconciliation requirements. So, then through the reconciliation, we observed that there is a discrements of INR490 crores.
And we have additionally estimated INR100 crores, that’s how it comes to INR590 crores of impact which we have put out in the press release. We have put out this number as we could best assess at this point of time, but we feel that the number is broadly appropriate to the situation– current situation. We don’t anticipate this to broadly move from here on to great extent. It could be a small– as we sort of go through the process, maybe these numbers could slightly change. Again, want to assure that the bank is well capitalized.
As you would recollect in the previous earnings call also, we have said that the profitability of the bank is on a positive trajectory because we expect credit cost to keep coming down and we also expect improvement in net interest margin during the fourth quarter and hence, whatever is the outcome of this exercise, we should be in a comfortable position to subsume that. So– and we are making all efforts to the flow of funds and seek appropriate restoration of funds.
With this, maybe I’ll ask Mr Vaidyanathan to add further color on this one.
V. Vaidyanathan — Managing Director & Chief Executive Officer
Yeah, good morning, everybody. Thank you very much for joining this call. A few investors called us yesterday and told us that the information that we provided in the noted exchanges is quite detailed, but still the impact– the financial impact is not well understood, whether this entire amount will be hit to the P&L, whether the recoveries will come, et cetera. And that’s where then we thought to ourselves that we should take this investor call right now and explain to you what the implication is, so this is broadly the subject of it.
And before we come to the financial implication, I must just say that this is a specific isolated incident that happened in one branch with one client group, which is the group that has been named out there by us. And therefore, we should we will this is basically a case where debit instructions have come supposedly from the which in high — which our people, which clearly to us indicates a fraudulent activity, have passed the entries and have transferred the money to certain parties outside the bank from the clients’ account.
Now they’ve also used checks when looked in hindsight looks forced, but someone has cleared it. So this looks to us on the basis of the work we’ve done, clearly a case of an employee fraud and it also our internal fingerprints and our details are quite clear that external parties are also involved here. So, this is a serious matter for us, we have run this bank now for the for 10 years and we have never seen an incidence like this — of this order of magnitude. Certainly not the bank has really excellent controls across the system as you know, we are a very technology a head bank or a technology-first bank and on all fronts like Mule and AML, et cetera, bank is doing as very well in terms of overall numbers and controls and so on.
But this is not a digital transaction, this is a physical transaction where people have come the checks have been forced, this is the — let me say, the oldest kind of fraud probably known to banking. So, how this has happened is obviously happened to the connivance employees, there is maker, checker authorized that the whole-system exists, but obviously, there’s some bunch of people have come together to make it happen. So, we will get to the bottom of this. We will spare no one and we have quickly moved in.
We have the– and appointed a forensic auditor for this KPMG and we will expect them to move in great diligence and move very fast and we will take the full support of the law enforcement of the country and really I can tell you we will spare just no one and we will take it as it comes. As far as the bank is concerned, I’d like to specifically share with you that the bank is now fundamentally in a strong position. So, just to share with you that the operating profit of the bank has now crossed 2%, which was earlier 0.5%.
So, basically on the core of the bank, it is now– the bank is on a very strong position and therefore– and the graph is rising. We have already guided to you earlier that on the basis of the trajectory and the incremental unit economics, we expect this to further go upwards of about 3.5% in due course as the bank fully evolves based on the rates at which we borrow and the rate we lend and the margin we enjoy, which is upward of 5.8% or 5.7% last quarter, but this quarter we expect to have 5.8%.
So, on the basis of that strong strength, we feel that this is an incident that will pass. But this incident will not– this incident pass-through the P&L as and when it comes and we will take it out. But I can tell you this incident will not pass-through our memory because this is a very significant event for us and we will really just scan every nook and corner of the bank for any such any such a process gaps, if any or any employee collusion fraud, et cetera. And we will make necessary amendment to contain this from here on.
We have done a discussion with our employees last night across the country and people have come across and said that they are holding foot very well. They’re comfortable with the situation. Every one of them is proud about the fact that they’re working with the bank and the bank is dealing with all matters so clearly, ethically, decisively and transparently. And they are very proud of the service levels of the bank, proud of the technology to provide, the products we provide to the customers, which are really customer-first products about the way we deal with our customers.
So, there is a strong degree of confidence in a cultural sense, there is a strong degree of confidence in the people. Our Board has been taken through the full matter and they have given certain guidances, but at the same time has full support we have taken the regulator past the matter and they have given us their inputs and guidance we have spoken to a few media channels who talked to us yesterday. So, we have done we have been all of us today being involved in dealing with the situation.
But I can broadly tell you that the bank is in full control and transactions across the country are will happen smoothly and this is an isolated case in the last five years, seven years have put up over 1,000 branches cumulatively, maybe over 1,050 or 1,060 and we have really not seen any incident of this nature that has that has happened here. So, but this but this incident is a further opener for us. We will check one more time, implement necessary controls and keep going. And I do feel that a quarter ahead hopefully you will look-through this incident.
So, once again for people who have joined the call, thank you for joining and feel free to ask your questions, please.
Questions and Answers:
Operator
Thank you so much, sir. Ladies and gentlemen, we’ll begin with the question-and-answer session. [Operator Instructions]. Ladies and gentlemen we’ll wait for a moment while the question queue assembles. Thank you.
Our first question comes from the line of Kunal Shah from Citigroup. Please go ahead.
Kunal Shah
Yeah. Hi, sir. Few questions, firstly, in terms of the impact as you indicated, the aggregate amount involved in the reconciliation is almost like INR590 odd crores and given that the money that maybe the other bank has also filed in terms of the credits being received from us and to the extent of like say, INR25 odd crores INR47 odd crores. So, in that sense, would this entire amount be repayable to the Haryana government and the liability lies on us? So, this will be like something like the entire financial impact that will have to be taken through the P&L or is there any other way, is there some money which is still available in those particular customer accounts at this point in time?
V. Vaidyanathan
So this– basically we are doing a layer by — level 1, level 2, level 3, meaning layer 1, layer 2, layer 3, we are figuring out where the money has gone. And you know, to the extent that there are monies the lines in the account have not left the system, to that extent, of course, we will be able to block the monies and try to recover those dues.
Kunal Shah
And if you can just quantify in terms of how much of the money would have been left, how much is the total Haryana government deposits and what would be the total government deposits for IDFC Bank?
Sudhanshu Jain
Yeah. So, Kunal, I’ll come in. So, the total Haryana government deposits are roughly 0.5% of our total deposit. So, it’s not that meaningful in that sense. Since the notification which came couple of days back, we have seen an outflow of about INR200 odd crores here, but we feel since the overall number itself is small, it should be quite manageable.
Kunal Shah
Okay. And this 0.5% would be after this INR200 crores of outflow.
Sudhanshu Jain
Yeah, I’m saying. Even if…
V. Vaidyanathan
But for a bank for…
Sudhanshu Jain
You ask for that number is… Yeah. [Multiple Speech]
V. Vaidyanathan
Probably move for a bank of INR2.8 lakh crores of deposits like INR200 crores is not the item. Yeah.
Kunal Shah
Yeah. And any ways wherein this would have been avoided and now looking at the internal controls, what we would put in-place in terms of authorization limits with respect to a particular ticket, would that have really helped or maybe there wouldn’t have been no way because there would have been the connivance with the external parties as well and maybe it shouldn’t have been avoided. So, what internal controls processes, how stringent we would get with particularly with respect to the government accounts and government business with this incident?
V. Vaidyanathan
The thing is that, at this at this point of time even as we speak, there are excellent controls which obviously has failed in the case because of collusion. But let me just share with you the controls itself in any case. There is a proper governance framework, there are defined SOPs, there are– there is authoration framework, there is a maker, checker, authorizer systems in banks as in case, certainly in the case of ours. And then there is a process for even normal customers, not just for government– not for government, not for large transactions, but for individual customers, there is a positive confirmation from customers for transactions only above INR5 lakhs.
The brand staff calls the customer to confirm the transaction before processing the check. So the bank also offers customers a system of something called positive pay where the customer can positively confirm the check issued by them, meaning that the customer is issued a check of a certain amount, customer can come to the app and specifically authorize a transaction. That’s a Positive Pay, so these things do exist. But of course the Positive Pays with the customers to specifically come and voluntarily subscribe to it because we cannot enforce it because then checks will — even genuine check may return.
The other thing is that there is a additional deconciliation — verification of high-value transactions for transaction value about INR10 lakh, additional verifier verifies the transaction has been correctly executed by the maker, checker. So, there are really many, many checks and balances. The issue in this case is that many of these people connived in making in making it happen. Now in terms of what new controls we will implement. This is a quick one on the basis of the last three days work, but of course we will do of more as it is progress.
There is a– we are planning to put a– an explicit system based on confirmation of high value transactions for branch-based transactions exceeding a predefined threshold, we will take an explicit confirmation from the customer and we’ll make it mandatory. The customers confirmation will then be captured through a verified digital channel with a stipulated window, meaning that the customer– we will– for example, if we want to clear a particular transaction, we don’t have to really call you, we will trigger a — an alert for you to specifically go to your app and say that, Yes, please clear the transaction.
So, this is a specific control will bring extra control. Now with the arrival of AI, we are also going to additionally bring, currently say before AI until the banking till-date, the authorized the branch manager physically sees the check and confirms signatures are matching and clearing it. But now we will put a system whereby through AI, the– this is– AI will do initial checking and then it will be double confirmed by the human. So therefore exceptions handling will be better controlled.
So we will– see, this is a– not an electronic transaction, so to say. This is a physical check, manual check, debit instruction that has come and like I said, the most traditional kind of fraud that has happened here. So we will improvise upon that and put some new controls on this but frankly we definitely feel that the overall the banks — the overall system at the bank is something that will further enhance based on the experiences we get from this incident. And we will deeply study how collusion happened and how we can prevent collusion that could be the other route matter.
Sudhanshu Jain
And further to add — [Multiple speech] just one more thing. Further to add, we had also send-out transaction alerts, monthly bank statements, monthly balance confirmation we had sought. So all of those processes are run-through systems and those controls are very much in-place.
V. Vaidyanathan
That’s an important point, Sudhanshu has raised, even in this case SMS alerts have gone balanced confirmation certificates have gone. So all that has been going on in this case as part of the process.
Kunal Shah
Sure, sir you don’t see any potential contingent effect of other state government’s decision in terms of how they allocate the government business to this empanelled banks. Would there be a risk-on that front?
V. Vaidyanathan
We will have to take it as it comes. But we are a bank with a strong capital adequacy with a good rating. As we are rated AAA by CRISIL on fixed deposits and AA plus in the long-term rating of the bank, which by the way has got upgraded twice in the last five years from AA minus to AA and from AA to AA plus. And you can clearly see the direction of travel after the bank rating. Our net-worth is over INR46,000 crores. Our customer business, which is both deposits and loans is now just INR5.6 lakh crores and you can see the growth over the last five years.
You can see how the operating profit has risen from a few INR1,000 crores to over INR7,000 crores. So, there are– the bank is on a very strong trajectory. So we feel that people will take care of it and we are very sensitive to all government accounts as much as we are with end-customers. So our intention is not to really, to litigate this or anything like that where we have– if we have made a mistake, we will own it up straightforward and we will do whatever request be done.
And if there is anything that in the gray zone where we feel the counterparties are involved — the employees of counterparties are involved, we will speak with them as conducively as possible and try to find a meaningful solution. So, we basically don’t mean to given a choice we don’t mean to litigate this unnecessarily. We believe that in fair completely being fair and if something is a responsibility we will admit it and we will move with it
Kunal Shah
Sure. That’s help yeah. Thanks for answered questions.
V. Vaidyanathan
Thank you.
Operator
Our next question comes from the line of Piran Engineer from CLSA. Please go ahead.
Piran Engineer
Yeah, hi, good morning. Just my first question is how long did this fraud go on before it was uncovered?
V. Vaidyanathan
So some of these questions will be difficult to answer at this stage because there are implications as we speak that there is a — this can become a legal matter and anything we say at this point of time will be– we’ll have to be very careful. So, let me just say that it is in a significant way when, as we put out in the stock exchange when we first got Haryana government’s request to transfer funds to another bank. At that stage the bank saw that the money was not reconciling as much as the government department thought was there in the account vis-a-vis what was actually the account which probably was a month ago and — but it accelerated during the last three days from February 18 onwards.
So, let me say, largely the actions that have been taken have been moment we spotted this after February 18. To date is when the action has accelerated. So much here.
Sudhanshu Jain
And just to add that what these request which we have received so-far there the difference the discrepancy which we have observed currently is to the tune of about INR490 crores. Additionally, we have scanned the rest of the accounts as well from where we have self-identified about INR100 odd crores. That’s why we feel that the impact or the discrepancy amount could be more around the INR590 crores, which we have quoted in the release. And of course, as we’ve said earlier, these numbers could move from here.
We could also get recoveries through these accounts. The legal process could itself establish and validate some of these claims. So we would give an update once this entire process is concluded.
V. Vaidyanathan
So, this INR590 crore is the summation as Sudhanshu mentioned is the INR490 crore is what to the extent when they ask for balance confirmations vis-a-vis what we saw in the bank of the bank account of those clients. That is a difference. That is INR490 crores. INR100 crores — Sudhanshu mentioned is the extra diligence that we in check other bank accounts and so on so forth. This is a bit of our own estimate at this point of time. But we think we are broadly right in the numbers we put out and we put it out in good paid the extra INR100 crore.
Now the next point is on this front, is that like Sudhanshu said that the– if there is a recovery that comes to the process, we will– that the impact will be reduced to that extent. Hopefully not extra any more claims are going to come. We don’t know, but we will deal with it as it comes. But we– our good faith assessment is that this point of time, this is the approximate number that we said is approximately correct.
Sudhanshu Jain
And sorry, just one more thing to add. We also have an employee dishonesty policy. Of course, the amount there is about INR35-odd crores. So to that extent, some amount could be negative.
V. Vaidyanathan
Some would be negative. To the extend of what…
Piran Engineer
What is INR35 crores?
Sudhanshu Jain
Yeah. Employee dishonesty policy, which we have taken at a bank level to cover some of these…
Piran Engineer
Insurance? Okay. Okay. Yeah, got it. So we…
V. Vaidyanathan
So, the final impact, there are– will depend on some of these factors recovery, the insurance that we have, an extra claim, we’ll take it as it comes. And but I want to just say, Piran, that whatever it is, we will deal with it and decisively deal with it, in a matter that is most fair and appropriate according to our as it goes.
Piran Engineer
Yes. No, see, my question came from the point-of-view, if it’s been happening for a long-time, it’s also then the fault of the Haryana government and then they should pay-up for it. Why should the bank pay-up for it? We are not conclude the…. If their own officials have done that, then why are we liable
V. Vaidyanathan
Yeah, see, that’s the reason I said that we are not putting out any specific number right now as to what we will provide for, not provide for, et cetera, because there’s time between now to the next results. So, we’ll think the whole thing over, because if counterparties are like the ones mentioning are — if that component is identified or covered, I’m sure they will also look into the matter and they could be the third-parties where the money has been transferred out, we will really go hell after leather up after those people as well.
So we will take this as it comes. But we have put out the– in our best estimate, the outer limit of what could happen to in a sense. And then take it from there because as you know, we don’t postpone things. That’s the reason instead of accounting is INR490 crores put out as INR590 crores because we really don’t want to postpone and leak the market with more-and-more news. So, we have proactively done extra work, proactively identified extra accounts, proactively put INR100 crores into it and then hoping that that’s how we do this.
And as all of you who know us for maybe 15 years, 20 years would know that we don’t postpone things when it comes to accounting or governance.
Piran Engineer
Got it. And also like is there a chance that employees one-level up are also involved because if the make or checkup process is there, ideally it should — the checker should be someone who is not in touch or knows the maker?
V. Vaidyanathan
Well, we’ll really we’ll come to know during the forensic audit and everybody will be investigated and the trails and the everything will be checked and we will identify this and get to the bottom of this.
Piran Engineer
Got it, and just lastly, overall government deposits with the bank would be how much? Like Haryana is 0.5%, but all put together?
Sudhanshu Jain
I think it will be in-line with broadly the industry standards would be about– for us also, it’s about 8% to 10% somewhere in that front.
Piran Engineer
Got it, got it.
V. Vaidyanathan
But that includes that includes central government, state government and frankly many of these organizations have a long track-record of running back to seven, eight, 10 years it’s just not about just deposits, just for information, it is basically providing a bunch of solutions. So– and on the solutions front, like many of your customers’ and you hopefully you have seen the quality of the services we provide at the branch, on the Internet, on the mobile banking, on the call-center, et cetera and the products.
Similarly, on the government banking side also, it’s not only about taking deposits from them. We are providing solutions from them. We are deeply integrated with them, we collect tax for them, both the state taxes as well as central taxes, the GST, the CBDT and so on. So just want to let you know that it is not the bank has taken deposits of these government from government. We are given deep solutions to them. For example, we– these are endpoint customers that we collect from and pay them the taxes and there’s an agency business running here.
So we have a deep thick relationship with all of them. And therefore we believe that this will be a matter that we will be able to handle and manage comfortably. And the business of the bank is growing. So, it is obvious that the services of the bank are appreciated by them for that the business is expanding with IDFC in this case. So as you know, deposits of the bank is growing by about 20% to 25% and similarly, government banking business is also growing by that order of magnitude.
So we have deep relationship with these people that I don’t think we should really concern that the whole-system will have a concern, anything like that. But we will still improve on our services from here on.
Piran Engineer
Got it. Yeah, okay, that’s it from my end. Thanks and all the best.
V. Vaidyanathan
Thank you.
Sudhanshu Jain
Thank you.
Operator
Our next question comes from the line of Vincent from Principal AM. Please go ahead
Unidentified Participant
Yeah thank you for taking — making this call I like to ask since February 18 this year, what other communications from other government-related or linked clients or accounts have we received related to this matter?
V. Vaidyanathan
Nothing, apart from what has come from this government — state government department, nothing else. Like I said we are enjoy good living../ No other… Yeah, no other and the like I said we enjoy a good relationship with the ecosystem and then the– we are deeply integrated. It’s a very important point for you to take note of is deeply like system to system host integrations are on. So it’s a running machinery. It’s not connivance only that somebody has left deposits with us. And to your second point, of course, that this– even for this– in this case, like someone else pointed out, that looks like there is a of multiple parties. And therefore, why should only IDFC First Bank pay for this? There are multiples. We are evaluating all of these things in a legal sense and our general approach is I’d like to say that our general approach is that if we feel with a hand-on heart that this our bank’s mistake then we have– we will not litigate these things. We will just do– we will– we will pay-up. If we feel that there are multiple parties involved and other people also has to have a responsibility, then we will go as per the process of law. But we intend to deal with this in an amicable manner with the entire ecosystem.
Sudhanshu Jain
And Vincent, just to add, just to reiterate, the discrepancies which we have got pertains only to this branch, no other branch.
V. Vaidyanathan
This is very important what Sudhanshu pointed out…
Sudhanshu Jain
To keep reiterating that?
V. Vaidyanathan
Yeah — No, thanks for that one. The important point, see, we are running over 1,000 branches. And frankly, 1,000 branches for starting from, say, 206 branches in 2018 December to 1,000 today, more than 1,000. And really from 1,000 branches, we’ve not had these issues. One branch has happened, we did nothing that we want. It’s a serious enough matter for us to learn from it. But it’s one branch, one client group. So, we will deal with this as a very isolated instance and other employees of the bank are the check and control the bank are thick are strong and many of them are technology-based
Unidentified Participant
So since five days ago there’s no other communications with other clients on this matter?
V. Vaidyanathan
No we have not got any invert call to many of these people…
Unidentified Participant
And I think since we’re trying to size the impact do we by any chance have insurance on this?
V. Vaidyanathan
Yes, Sudhanshu mentioned that a moment earlier we have employee dishonesty insurance of about INR30 odd crores in this case.
Sudhanshu Jain
INR35 crores.
V. Vaidyanathan
INR35 crores.
Unidentified Participant
Okay and I think one last point is that based on what we know so-far, how is it that the client received statements monthly and did not realize this happened yeah
V. Vaidyanathan
No this is indeed a good question. In this case these are system triggered this important note, these are system triggered SMS, email alerts, every transaction had have been sent and so on. So well, these are– your question is something that will be examined as part of the process of evaluation and therefore, hopefully people the respective responsibilities will be assessed and we will take it as it comes.
Unidentified Participant
So the client acknowledge that they received these statements fronts?
V. Vaidyanathan
These are system generated.
Sudhanshu Jain
Yeah. So these statements have– as I said, transaction alerts have been sent to the– to the mobile number, statements have been sent on to the authorized email IDs and this has been sent on a periodic basis.
Unidentified Participant
Yeah, yeah. Yes. Thanks for that,. I just want to understand on receipt of the statements and in fact in the last five days, the client acknowledged that they was a lapse in that process and they have in fact received this statements.
Sudhanshu Jain
So, we feel that statements have certainly been sent and would have been received. One of the clients have come back with certain discrepancy and then this reconciliation process is underway with few more clients and that’s how we have assessed the discrepancy amount. And of course, we will now wait for this process to get over.
V. Vaidyanathan
See, these are the kind of things that we got to, we will get into the depth of it. That’s bank has triggered the alerts. So as and in fact there are normal clauses that you find a discrepancy of the statement, please get back to us immediately. So this is a normal banking convention and disclaimers when banks are send because then banks sent statement of accounts in banks and SMS so these things have been you know are there and this will come up as a subject of discussion during the whole process.
Unidentified Participant
So just one more sorry. I mean since I think it’s very important for any bank to get this right, which is the statements are true and accurate, it is just that the client did not — was not aware that certain employees had initiated the debit.
V. Vaidyanathan
No, no but irrespective of who — where the checks were forged and they were paid out assuming that they were when you look in hindsight and check the signature and assuming they are not exactly tying to the T and so if even if that be so, the bank has– there is a certain bank balance that is reflecting on the books of the account that has been sent out– sent out to the parties. But like we said these are part of the evaluation of the processes that will come up whether about the delivery, about the responsibilities and so on and we will take it as part of the process and we will handle it as it comes
Unidentified Participant
Well, sorry I just need to get this right which is accounting for the fraudulent transactions after that the statements are true and accurate. [Multiple Speakers] Had the transactions happen the balance accurate?
V. Vaidyanathan
Obviously because to the extent let us say that a bank account is 1INR00 and suppose INR20 has been taken out– has a check has been passed out of INR20. The balance INR80 is the balance in the books of the account and that is what the statement of account will go for. That is the back. Yeah, so that is what will go for. So there is no error. There is no– absolutely no error in the statement of account as such, the statement of account is at absolute…
Unidentified Participant
Yeah. That’s clear.
V. Vaidyanathan
This is very important. I’m so happy asked questions
Unidentified Participant
Yeah. So
V. Vaidyanathan
There’s absolutely no error in the statement. Statement reflected what the system balance shows. If a transaction fraudulent transaction has happened so if it happened that has gone so that is a fraudulent transaction, but bank balance is correct, the transaction is correct, it has happened and the customer has been told. So there is absolutely no system error system supported the correct balance and customers was sent the right balance.
Unidentified Participant
Thank you. That’s very good. Thank you.
V. Vaidyanathan
Thank you.
Sudhanshu Jain
Thank you.
Unidentified Participant
That’s all. Thank you for the answer.
Operator
Thank you. Our next question comes from the line of Param Subramanian from Investec. Please go ahead.
Param Subramanian
Yeah, hi. Good morning. My first question is on this forensic audit. So what is the scope of this audit? Is it specific to the branch or is it wider? And when can we expect the outcome of this? Yeah, that’s my first question.
V. Vaidyanathan
We are working out the scope at this point of time. Maybe Sudhanshu can throw light,. Sudhanshu?
Sudhanshu Jain
Yeah. So as I said, this incident seems to be just particular to this branch and largely because of connivance of employees and maybe some parties upside. So we yet to finalize on the scope and we have appointed KPMG only yesterday. So we’ll get into some of those nitty-gritties during the course. And typically, it depends on the investigation, of course. Typically to my best of my understanding, these processes could take about four to five weeks to conclude.
Param Subramanian
Four to five weeks? Okay, and it is special to the branch, okay. Okay, secondly, this was asked previously, what is the exposure of the bank to say all state governments and central governments broadly as a percentage of deposits?
V. Vaidyanathan
I thought Sudhanshu just answered that earlier, because it’s– about
Sudhanshu Jain
8% to 10% of our total deposits to state government, central government, PSU entities..
V. Vaidyanathan
And it’s could typically growing in-line with the overall book of the bank, so to say, somewhere that zone.
Param Subramanian
Okay. Then on deposits overall, I mean, I know it’s very early days, but do you think this can have any implication? I’m not talking about state government, but overall on your — say, higher-value deposit balances, because we have only started undertaking this journey of reducing our savings account rates, right? So, is that something that you think will see some delays or because we are also following a strong growth trajectory. Any color on that relatively? And secondly, we are talking about, say, a tight control on costs going ahead.
Will this have any implications on that? Because I heard you mentioned earlier that we are kind of taking a review of our processes, et cetera. So, any impact on, say, both of these things?
V. Vaidyanathan
Sorry, I didn’t understand last review of, but let me fill it in for you because I couldn’t hear you well. But I’ve already got the spirit of your question. So the– what I meant is that I didn’t hear the tail of your question, rest I heard. Now the…
Param Subramanian
I could mentioned that. Yeah. So I meant since we are undertaking a review of processes across the bank, I think you called that out. And of course, we are in the process of consolidating our costs. So will there be a impact of this on that?
V. Vaidyanathan
Okay. Got it. Got the question. So first of all, you see the banks largely, let me say, while this is a collusion of employee case, the bank systems are already in-place. Let me let me just share with you that for a bank to run so well, you may have noticed that it’s been like 10 years, there has never been a single smell about the bank in the market about either experienced by customers or even any incident like this. So obviously, let me just say that systems of bank are running really very, very well.
This is a case of collusion. So, this is a case of collusion with of our employees with some counterparties outside and this is a key risk to addresses collusion risk. The systems as such are running are running really well and fine. So, we don’t expect that because of this, we have to put so many new control that going to impact the cost of the bank or nothing like that. So, I think we don’t think so. If anything, if you incur a small cost towards the part of control, it’s probably good cost to incur.
But we don’t expect any material costs coming from that. Your second question is the bank reduced interest rates so sharply recently. Well, the truth — the fact is that we– yes, we have dropped interest rates, but the deposits are continuing to come well from– even after we dropped the rates and it’s quite comfortable. And number three, we believe that over the last maybe many years, maybe seven or eight years, the bank has built a really good brand. The bank has built culturally if you see if you notice the banks appreciated for its for its culture, even employees, how they experience the culture and how they spread the word around in the market among their friends, families, relatives and everybody has bank accounts with us.
The smell of the bank is very, very good, which is a very difficult thing to achieve. It’s not about advertisement, advertisement is about how much money you spend, but experience is the hardest to gain and the bank has built experiences. The bank has built a– in terms of deposit growth, bank has built a really good mobile app. Bank has built hyper personalization capabilities. Bank has built data lake, analytics, machine-learning, artificial intelligence and hyper personalization, anti-spamming rules, anti-repetition rules, these are like and very good design layer, the UI/UX layer, the experience layer, and the response times are really good.
So, what I’d like to say is that the bank has built really good capabilities and all of — and relationship management and service capabilities and service center, so bank has built such a fantastic stack of capabilities, but really deposits are coming from the full stack. So, that’s very important note. And we believe that one incident of one branch and one location people will look-through and deposit will continue to grow. And if anywhere results will come out, we’ll share with you results of deposits this quarter also.
Sudhanshu Jain
And Param, just to add, we maintain liquidity levels and we will of course closely monitor the situation.
Param Subramanian
Okay, fair enough. Yeah, I got very clear. So, again, on liquidity, right? So, I mean our LCR is at like 115%, it’s a little lower than where the other large private banks are. So, as some abundant cautions say from a near-term perspective, will we have some, say, higher liquidity buffers we’ll be maintaining. So consequent near-term impact on margins? I’m just trying to understand, sir, the implications from a near to medium-term business trajectory?
V. Vaidyanathan
Bank always makes– you know our bank. We always high capital adequacy more than requirement. We always do retailization more than the requirement. We always keep more liquidity than more than requirement. We are like super conservative in the way we run the bank. You can see that the credit deposit ratio of the bank for seven years in a row on an average for the last seven years is 75%, okay, 75%. So, it’s been– let’s been seven years on an average, on an incremental basis, the stock was higher.
It’s now come down below the comfortable levels. But basically, you can see that incremental has been 75%. So, we run the bank really very, conservatively. We take no chances at all. And we have very, very low levels of certificate deposits. You could have heard from the market that certificate deposits have gone up to INR5.5 lakh crores in the system. IDFC hardly taken certificate deposit keep it very low. So we run the bank through core high-quality retail deposit franchise from individual customers.
So, we run the bank. So we are– so not to worry, we always– these are our principles of running the bank and never take chances and that’s how we’ll run it.
Param Subramanian
One last question, if I may. So, I mean what is the gap that you think– I mean you will be undertaking a review, but what is the gap versus some of the large private banks that you think was there if any or do you think this could have played out in any banks in your view because you did call out that we have been strong in our risk management, but this has happened at our bank, right? So, what is that gap and what are we doing incrementally to bridge that? Yeah.
V. Vaidyanathan
Clearly employee collection risk, if you make a checker authorizer, everybody in a branch compromises with a counterparty on the outside and plays a fraudulent check or creates a fraudulent transaction, maybe in this case, even with the multiple parties. So, this is a kind of a stuff that can happen frankly, with that can happen anywhere in this a traditional kind of fraud of a check and that kind of stuff. But really this is when we will also introspect on this, we should also think about our staff transfer policy, how maybe their own behavior, maybe we should be able to figure out more transaction pattern of how employees accounts and conduct our we need to think a little deeper about how we could have stopped dealt with a collusion this is not a system failure.
This is not electronic system failure, this is not– the systems are running or holding us very well. This is a collusion of individuals. So, we will reflect on this. We will definitely reflect on this and we will take some very decisive moves about how we will prevent this going-forward. And we really would be– never want to see another incident like this in our lifetime in this bank, again, we will make some very decisive moves.
Param Subramanian
Thanks a lot, Vaidya. Thanks, Sudhanshu, all the best.
Sudhanshu Jain
Thank you
Operator
Thank you. Next question comes from the line of Prakhar Sharma from Jefferies. Please go ahead.
Prakhar Sharma
Hi, good morning, and thank you for doing this call-in a timely fashion and sharing the color, I just wanted to ask if it will be possible to see the biggest question that all of us are trying to wonder is this one branch, one government issue or is there is any chance that maybe a month or two later something else comes up. Is it possible to cover in the scope of either the audit or separate exercise, a reconciliation of balances across governments and maybe issue a consolidated press release that this exercise has been done and no gaps have been observed or if any gap has been observed, that will give immense clarity to the market not to or kind of extrapolate this issue beyond what has come over the weekend, if that’s possible.
V. Vaidyanathan
Yeah, this is a good point. This is a good point, we will evaluate this actually. We’ll think this over a little, but I think it’s a good point. Because see, the thing is that the more we expand, the more focus will be lost, we want to be very, very clear about the focus of this, we have to get to the bottom of this. And with regard to the due-diligence, whether internally or externally, we will definitely do a proper due-diligence on the rest of the system as well. Definitely do that. Thanks, Prakhar a very good input.
Prakhar Sharma
Perfect. Thank you so much and best wishes to all of you.
V. Vaidyanathan
Thank you, Prakhar. Thank you.
Operator
Thank you. Ladies and gentlemen, due to the time constraint, that was the last question for today. We let hand the…
V. Vaidyanathan
No, that’s fine in case I don’t want to cut out anybody if anybody else has asking a question please feel free.
Operator
Sure. [Operator Instrutions]. Our next question comes from the line of Subir Sen from Aditya Birla Sun Life Insurance. Please go ahead.
Subir Sen
Thanks for the opportunity. Just wanted a small clarification that INR490 crore plus INR100 crore, which you mentioned, that INR100 crore also pertains to Haryana government?
V. Vaidyanathan
Yes.
Subir Sen
And this is only one account and one check or there are multiple checks and multiple accounts?
V. Vaidyanathan
I think this is multiple.
Subir Sen
Okay, thank you.
Sudhanshu Jain
We, pertain to that branch only.
V. Vaidyanathan
Again, there also INR495 crores
Sudhanshu Jain
[Multiple Speech] also.
Subir Sen
Okay. Thank you.
Operator
Thank you. Our next question comes from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead.
Nitin Aggarwal
Yeah, hi, thanks for the opportunity. Just sir, one small question, like this money that has gone out INR580 crores, like is it all to the private banks or some PSU banks also there and only two banks have been de-empanelled by the state government. So why is that so and any color if you can share as to the mix of the outflow and this some rationale around this de-empanelment?
V. Vaidyanathan
The money has gone to many other banks actually in the system. So and even those banks are cooperating the process so we’ve reached out to many of them and they’re all highly cooperative with regard to the — what is the second question?
Nitin Aggarwal
The de-empanelled has happened only for [Multiple Speech] whereas multiple banks?
V. Vaidyanathan
Understand. That we can. We can understand you know from their point-of-view from the counterparty’s point-of-view where you know that incident has occurred. I think it will be a natural reaction for them to put up to take the action. They did I think that it is our responsibility to do better and to and to give the necessary assurances and come back-in the game.
Nitin Aggarwal
Sure sir.
V. Vaidyanathan
And in many occasions that the as Nitin, the bank for long we have really you know where we’ve come from this bank.
We really– so I think we cover a lot of ground, we will cover ground on this front as well and win-back the confidence of that client.
Nitin Aggarwal
Sure. We fully understand. Thanks for doing this call. Thank you so much.
Operator
Thank you. Our next question comes from the line of Deepak Gupta from JM Mutual Fund. Please go ahead.
Deepak Gupta
Hi, good morning, sir. I just wanted to understand the timeline of the incident, given the fact that the branch would have been subjected to multiple concurrent and internal audits, does it imply that this would have been a recent transaction, which is why It was…
V. Vaidyanathan
I mentioned that earlier that there are certain things which are under the scope of the audit, let the information come out as it comes out. But the more– the trigger was the fact that certain departments asked for balanced confirmations. And then what they assumed or they thought basically when the books of accounts, there was– there a difference and that’s how we surface this. But really what we have done is that apart from the INR490 crores that came out, we have independently self-evaluated the rest of the system.
We have found a gap of INR100 crores. We have put everything together and we want to announce everybody one-shot so that we don’t have to come back to you again and again this is our intent at this point of time.
Deepak Gupta
Understand that and sir given the fact that you know that there has been from the government side as well probably and the investigation going on shouldn’t we fight tooth and nail to get the money back or to ensure that we don’t have too much of financial loss?
V. Vaidyanathan
See the thing is that first of all the it is a forensic audit that will establish a lot more of these of the facts and from the facts will come responsibilities and it is you could very well be right that there could be errors from the other party as well. There could be error from the some colluding party for the beneficiaries. So if all that responsibility will be attached. Now your question is that why should IDFC Bank put the bill for the entire model, multiple parties are involved and other parties are also involved.
That is something we will establish at the point of– as it goes. But our intention generally as an approach as a bank, as a management is whatever is fair has to be done. If it’s our responsibility, we will foot the bill and to the extent our responsibility is crystallized, definitely will foot the bill. We will not fight tooth and nail for things that we don’t deserve to keep in our books or our P&L.
Deepak Gupta
Sure. Noted, sir. Thank you.
Operator
Thank you.
V. Vaidyanathan
So I think– sorry. Go on, anybody else want to ask the question?
Operator
Yes. Next question come from the line of Jayant from Axis Capital. Please go ahead.
Jayant Kharote
Thank you for the opportunity. One question I wanted to ask on the– what would be the size of government, state government deposits in our overall deposits? And do you see any impact?
V. Vaidyanathan
I thought already answered that– and also with maybe you joined late and sorry, you didn’t finish the second part of the question?
Jayant Kharote
Second question was that only, sir, is that — I’m sorry if it’s already answered, but do you see any impact from other state governments in North from right?
V. Vaidyanathan
Yeah, I think that question was already answered. We have already — but since you’re coming in late, maybe I’ll just quickly– 10 seconds helpful, me answer this that our– we have a deep strong relationship with everybody. Our systems are deeply integrated with the systems of these governments. We pay– we collect taxes for them. We do– there are multiple sets of services. We collect state taxes center, taxes, GSTs and so there is just so much more we do with them. It’s like deeply integrated relationship.
We expect the relationship to continue to behave well as everybody else. And like I said, we are a very well-rated bank. I’d like to say we are AAA CRISIL on fixed deposits and AA plus on CRISIL and long-term rating. These are very-high ratings and increasing if you see the trend. So we are a good bank, good capital adequacy good balance sheet size, good culture, good systems, deep integration. So we have many things going-in our favor and good relationship management and people would only ticket unnecessary.
So we– I believe we will– the way we wil — our conduct, we will demonstrate to a conduct that we dealt well in this matter and we will continue to enjoy the confidence of the people.
Jayant Kharote
Thank you sir and apologies for the repetition.
Operator
Thank you.
V. Vaidyanathan
I think we if — I think is okay, yeah. Can you take a last question friends because I think we’ve been at this.
Operator
Sure. We’ll take the last question from Siva Natarajan from Principal Asset Management. Please go ahead.
Siva Natarajan
Yeah, hi, thanks. Just following-up on an explanation you gave earlier, is the process for authenticating and clearing a physical check at IDFC the same as other large private banks?
V. Vaidyanathan
Yes, yes, it’s very much the same. In fact, we are absolutely not on par with any– in any good bank. This is a collusion that has happened like we discussed before. And in collusion is a collusion risk, it can happen– it can happen anywhere. But of course, we will now reflect on it and see what more we can put in terms of the controls.
But to answer your question, yes, of course, not only the process are the same, we do validation, the eye-to-eye checking of the check versus the whether the system or the process is same. Basically you check the signature on the instrument versus the system or system, you clear it and then there is a double, triple check of a maker, authorizer, verifier, et cetera. All that has been followed in this case. And then these are followed up with sending a communication system generated statement to the registered customer IDs, mobile alerts, SMS alerts, monthly bank statements, monthly balance confirmation certificates, all of these things go to the customer. So, these are the standard process of the banking system.
Siva Natarajan
Thank you..
V. Vaidyanathan
So with your permission friends can I please close this call? Moderator, can I go-ahead? Because it’s been like it’s like touching nine. The– I’d like to just conclude by saying one thing that this incident of course has deeply disturbed us because not because of the of anything else because the bank has had a sterling record on operational excellence for the last 10 years, like I said before, not a single smell like this in 10 years of operation and in the last seven years post-merger as well.
So when that story get gets disturbed by one incident, it has disturbed us we are not going to let this go in waste. We are going to get to it, if it’s collution of the key risk then we will address collution and if there are any other systems also we’ll address it. Maybe we’ll discover if we discover anything. And that’s one. Number two, we would like to point out that the core operations of the bank is very important for you to be request you take note of this incident has disturbed you also.
We feel we really regret that. It shouldn’t have happened, particularly the magnitude of the issuance is more and we– that also disturbs us. But coming back to it, so– but when you look-back, I want to just share with all of you that this bank has come through from the situation we were, let me say, in the– at the time of merger, the core operating profit of the bank is very strong. Our ability to take some of these hits today is better than ever before. At the– and that is– the core strength is strong.
When you look up, look-through this, hopefully, all of you will look-through this for one quarter. We have not yet decided what we’ll provide and not provide, but you assume that we will take some provisions for this, please assume that. And we believe that the bank because the net interest margin is expected to increase, the credit cost expect to go down this quarter. So we were on the standalone basis, we were expecting a very solid quarter this Q4 in terms of profitability, we were expecting– you should see last two quarters have gone up from INR350 crores to INR500 crores. We were expecting a higher number this quarter.
So we were ability– this is our normal base case expectation. Of course, despite this hit, if we were to take one, we still expect to be profitable. This is our estimates at this point of time. So we believe that hopefully when you will wake-up a quarter from now, you will look-through this, we will not look-through it, but hopefully you will look-through this. And maybe from there on, we will emerge stronger. I want to take the opportunity of even sharing with all of our employees that we have come through a lot to become a strong bank now and de-rated what we are and we will come out stronger from this. We will emerge stronger. We are confident about that.
Operator
[Operator Closing Remarks].