AU Small Finance Bank Shares Tank 7% Following Haryana Government De-Empanelment

Bank-ltd-286335">AU Small Finance Bank experienced a tumultuous start to the week, with its share price plummeting as much as 7.74 per cent during Intraday trade on Monday, February 23, 2026. The sharp decline followed a directive from the Government of Haryana to de-empanel the lender from conducting any government-related business within the state. The stock reached an intraday low of Rs 950 on the National Stock Exchange, accompanied by a massive surge in trading volume. Shares worth over Rs 1,123 crore changed hands, marking the highest level of activity for the counter in four months as investors reacted to the sudden regulatory shift.

The catalyst for this market reaction was an official circular from Haryana’s Finance Department, dated February 18, which barred both AU Small Finance Bank and IDFC First Bank from government business until further notice. The order was explicit: no government funds are to be parked, invested, or transacted through these institutions. Furthermore, all state departments and organisations were instructed to immediately transfer existing balances and close their accounts with the affected banks. This move appears to be a defensive measure following disclosures of suspected fraudulent activities linked to government accounts in the region.

The timeline leading to this friction began in mid-February when a Haryana government department requested granular details regarding specific account transactions. By February 18, the state’s inquiries intensified, focusing on suspected unauthorised transfers between a government account and another customer account held at the bank. These developments coincided with a separate disclosure from IDFC First Bank regarding a ₹590 crore fraud at its Chandigarh branch, which seems to have prompted a broader crackdown by the state authorities on their empanelled banking partners.

In a formal clarification released on February 22, AU Small Finance Bank sought to calm the markets by stating that its preliminary internal review found no evidence of fraudulent activity within its own operations. The bank maintained that it has no direct financial exposure or impact resulting from the disputed transactions. According to the lender, the accounts in question were opened following strict Know Your Customer (KYC) protocols and all internal authorisations were verified. The bank has since submitted a comprehensive audit trail, including verification call records and documentation, to the relevant authorities to prove its compliance.

The specifics of the transactions reveal a complex flow of funds. The bank noted that a government account initially received Rs 25 crore from one private bank, followed by Rs 47 crore from another institution—the latter of which has recently disclosed its own fraud concerns. Subsequently, approximately Rs 47 crore was moved from the government account to a customer account via 14 separate transactions. AU Small Finance Bank asserts that these transfers were duly authorised by the concerned government department in the normal course of business and that the account was officially closed in mid-January 2026.

Regarding the immediate financial fallout, the bank’s exposure to Haryana government deposits stood at Rs 735 crore as of February 17, which has since tapered down to Rs 538 crore. This figure represents a relatively small portion—roughly 0.4 per cent—of the bank’s total deposit base. To maintain transparency and facilitate a clean investigation, the lender has placed certain employees off duty. Despite the current crisis, the bank remains in active dialogue with the state government, aiming to clarify the misunderstandings and eventually pursue re-empanelment.

While the Monday selloff reflects significant investor anxiety over reputational risks, it is worth noting the bank’s broader market context. Despite the 3 per cent dip since the start of 2026, AU Small Finance Bank has been a standout performer over the last twelve months, delivering returns exceeding 80 per cent. This far outpaces the Nifty Bank index’s 24.94 per cent gain over the same period. For now, shareholders are weighing this long-term growth against the immediate uncertainty of the Haryana government’s investigation and the potential for further regulatory scrutiny.

Disclaimer: The article is for informational purposes only and not investment advice.