Multinational brokerage Bank of America Securities (BofA) has downgraded the rating on IDFC First Bank Ltd. to ‘Neutral’ and reduced its 12-month target price to Rs 75 from Rs 95. This decision comes in light of near-term challenges after the bank was de-empanelled by the Haryana government following a fraud incident. The brokerage foresees a 13 to 14 percent decrease in the bank’s EPS estimates, leading to the downgrade from its previous ‘Buy’ rating.
Following the incident, the bank has witnessed approximately Rs 200 crore of deposit outflows from the Haryana government, with outstanding deposits currently standing at around 0.5 percent of the bank’s total deposits. In response to the situation, the bank has reported a fraud of Rs 590 crore in Haryana government accounts involving certain employees. It has engaged KPMG for a forensic audit, with the final report anticipated within four to five weeks.
Analysts at BofA have cautioned that the fraud incident poses risks to current account and savings account (CASA) growth, could increase funding costs, and might slightly ease loan growth. This could potentially raise operating expenses for risk management and compliance. Consequently, the brokerage has adjusted the bank’s loan growth estimates for FY27 and FY28 by 1-2 percent and reduced deposit growth forecasts by up to 3 percent.
Despite these challenges, the brokerage maintains a positive outlook on the bank in the medium term, citing healthy growth and continued expansion in return on assets. Shares of IDFC First Bank have declined by 12.50 percent this week to Rs 72.54 per share on Thursday, although they surged by 3.30 percent on an intraday basis. Independent brokerage estimates indicate that the suspected fraud amounts to about 0.9 percent of the bank’s net worth and 20 percent of its FY26 pre-tax profit.
