IDFC First Bank Ltd. shares plunged 15%, marking their steepest decline in nearly six years, after the mid-sized Indian lender disclosed suspected fraud in accounts linked to a state government. The Haryana state government has asked to pull funds from the bank, raising alarms about the lender's financial health and governance.

The sharp selloff reflects investor concerns over potential exposure to fraudulent activities and the loss of a major state client. IDFC First Bank, which has been working to rebuild its balance sheet and reputation, now faces renewed scrutiny as the allegations surface. The bank's disclosure comes amid broader concerns about corporate governance and risk management in India's banking sector.

Market analysts say the withdrawal of state funds could significantly impact the bank's liquidity and earnings, especially given Haryana's role as a key depositor. The stock's dramatic fall underscores the market's sensitivity to governance risks and the potential for contagion in the financial sector. IDFC First Bank will need to act swiftly to address these issues and restore investor confidence.