Clarifying the instruction from the Haryana government de-empanelling it, on Sunday informed the exchanges that it has “initiated an internal review” on the matter.
This comes after the Haryana government’s decision on 22 February to de-empanel AU Small Finance Bank and IDFC First Bank for state government business until further orders. This means both institutions are barred from handling no deposits, investments or transactions will be routed through these banks, as per a notice from the state Finance Department.
Notably, on 21 February, said that four employees at its Chandigarh branch were suspected of involvement in a ₹590 crore fraud targeting Haryana government-linked accounts.
AU Small Finance Bank clarifies de-empanelment: Timeline
According to the bank, on 16 February, it received a communication from a government department seeking account-opening and transaction details relating to one specific account opened by the said department (government account), and it submitted all related details.
Later, on 18 February, it received another communication from the department requesting details regarding suspected unauthorised transactions between the government account and another customer account with the bank, it added.
Later that same day, the state Department informed the bank about its de‑empanelment for government business in Haryana.
₹47 crore funds transfer: What does internal review show?
The bank has initiated an internal review of this matter, which confirmed that the government and customer account involved were both “duly opened after completion of all applicable checks and requisite authorizations and in accordance with the Bank’s internal policies and processes”.
“Based on available facts at this stage and preliminary review, there is no indication of any financial impact or any fraudulent activity towards the Bank,” it said.
It added that all in the said government account were reviewed, and records show:
- This government account was opened with an initial credit of ₹25 crore transferred from a large private sector bank.
- Additional credits of around ₹47 crore were subsequently received through multiple transactions from IDFC First Bank, which has informed that employees are suspected of ₹590 crore fraud targeting Haryana government-linked accounts.
- Out of the total credits received in the government account, AU Small Finance said about ₹47 crore was transferred to the customer account through 14 transactions.
- As per the Bank’s preliminary findings, all 14 transactions were initiated by the concerned government department, duly authorised, and executed in accordance with the instructions provided by the department, in the normal course of business.
- “The Bank maintains a complete audit trail and all details, including account opening forms, , cheques and other transaction instructions, verification call details and supporting records which have been submitted to the concerned government department,” it added.
- It said that the government account was closed on 15 January, following instructions from the department and the outstanding balance of ₹25 crore, along with accrued interest, was transferred back to the original large private sector .
What steps has AU Small Finance Bank taken?
- The Board has been informed that the bank continues its on this matter. “To ensure a fair and transparent review, certain employees have been placed off duty,” it added.
- Further, it is engaging with the Haryana government to assess the reasons for de-empanelment and “will fully cooperate with the government and any other authorities, as required”.
- As on 17 February, AU Small Finance Bank had total deposits of ~ ₹735 crore from the Haryana government, which has reduced to ~ ₹538 crore as on 21 February across around 200 accounts (~0.4% of the bank’s overall deposits as on 31 December), post this de-empanelment.
What did the Haryana govt de-empanelment notice state?
- The Haryana government circular, dated 18 February, said no government funds shall henceforth be parked, deposited, , or transacted through IDFC First or AU Small Finance banks, PTI reported.
- It directed all concerned departments/organisations to take immediate action to transfer the balance and closure of accounts maintained with these banks.
- The Finance Department statement said some banks were not adhering to the conditions under which are being made by the departments and corporations.
- “In several cases, it has been observed that despite clear instructions to place funds in flexible deposits or other fixed deposit instruments offering higher rates of interest, banks are retaining the funds in savings accounts, resulting in lower returns and consequent financial loss to the government,” it said.
- It also directed all Departments, Corporations, Boards, and public sector utilities (PSUs) to: Ensure that are placed strictly in accordance with the approved terms and conditions.
- “Immediately take up discrepancies with the concerned banks and report serious deviations to the Finance Department… and complete the process in all respects by 31 March 31,” reads the circular.
- A compliance report, duly certified by the competent authority, is to be submitted to the Finance Department by 4 April.