Multinational brokerage BofA Securities has downgraded the rating on IDFC First Bank Ltd. stock and slashed the share price target, citing near-term headwinds after de-empanelment by the Haryana government. The target price has been cut to Rs 75 from Rs 95 earlier and the rating revised to 'Neutral' from 'Buy'.
The bank had reported fraud a incident in Haryana government accounts of Rs 590 crore by certain bank employees who, along with other parties, moved balances from multiple government linked accounts to others. The bank has appointed KPMG for a forensic audit and expects a final report in four-five weeks.
Since the news of the incident, the bank has seen nearly Rs 200 crore of outflow from its deposits from the Haryana government and outstanding deposits is almost 0.5% of total bank's deposits.
The bank currently has almost 8-10% of total deposits from central government, state government and other PSBs. Prior to this, the bank had not seen any deposit outflow or requests from other government accounts.
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Impact
Analysts at BofA said the fraud incident presents risk to CASA growth in near term due to risk of deposit outflow based on news and de-empanelment by any other government account, along with one-time earnings impact of Rs 590 crore. Pressure on CASA is likely to result in elevated cost of funds and slight impact on loan growth. They also expect increase in operating expenditure driven by higher risk management and compliance related cost.
The brokerage has reduced their loan growth estimates for FY27 and FY28 by 1-2% and deposit growth by up to 3%.
"We believe that higher funding cost on disruption in CASA and increasing competition in deposit markets is likely to put pressure on NIM. This results in a 13/14% cut to our EPS estimates for FY26/27," a note said.
Despite these factors, analysts said they remain constructive on IDFC First Bank over the medium term given healthy growth and RoA expansion trajectory. Clarity on full impact of the incident is likely to delay re-rating, the note said.
Shares of IDFC First Bank is down 13% so far this week, despite a mild recovery on Thursday.
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