Haryana’s State Vigilance and Anti-Corruption Bureau has arrested four people in connection with a Rs 590 crore fraud involving IDFC First Bank, officials said on Wednesday. Those arrested include two former bank employees and two private individuals who operate a partnership firm. Arrests were made late Tuesday night as the investigation gained momentum.Subsequently the Bank paid 100% of the principal and interest, totaling Rs 583 crore, to the concerned departments of the Government of Haryana. The matter came to light on Sunday, when the bank revealed that a fraud of Rs 590 crore was detected in accounts belonging to its employees and others belonging to the Haryana government. The Anti-Corruption Bureau had earlier registered an FIR in the matter, while the Haryana government had constituted a committee to investigate the suspected fraud. what did the bank sayThe bank said employees at its Chandigarh branch made unauthorized transactions in accounts linked to the Haryana government, leading to mismatch of deposits amounting to about Rs 590 crore, which is more than the bank’s third quarter net profit of Rs 503 crore.Initial internal review revealed that the irregularities were limited to a specific group of accounts belonging to the Haryana government in the branch. The bank then lodged a police complaint, informed its statutory auditors and appointed KPMG to conduct an independent forensic investigation.Managing director and CEO V Vaidyanathan said the lapses were limited and linked to internal collusion rather than any broader structural problem.“The bank has the necessary controls in place, including makers, checkers and writers, to clear checks or debit instructions from the department,” Vaidyanathan told ET. “We have been in operation for over 10 years and have opened over 1,000 branches and had never had such an incident before.”He said, “Prima facie third party entities are involved in this arrangement… This issue is specific to one branch and one customer group and thus is an isolated instance. There is no system-level problem.”sharp market reactionInvestors’ property worth more than Rs 14,000 crore was destroyed by this incident. Shares of IDFC First Bank hit lower circuit on Monday after it was found that alleged embezzlement was more than the bank’s quarterly earnings.The stock touched a 52-week high of Rs 87 in the first week of January and remained close to the same level in the following weeks. However, sentiment weakened on Monday when the share price fell to Rs 70 from its previous close, making it nearly 20% lower than its 52-week peak. On Wednesday, the stock traded in the red at Rs 70.43, down 0.54 points or 0.46%.Inspection measures and state responseThe board’s special committee to monitor fraud cases met on February 20, followed by the full audit committee and board meetings on February 21.In an early morning regulatory filing, the bank said it has informed the banking regulator and lodged a police complaint. It has also issued recall notices to beneficiary banks, demanding lien marking of funds in accounts marked as suspicious to help limit the financial impact.Its consequences have also reached the state government level. The Haryana government has removed IDFC First Bank from its empaneled list along with AU Small Finance Bank and directed state departments to close their accounts in both the banks.