BofA Flags Near Term Headwinds After Haryana Panel Removal
Multinational brokerage Bank of America Securities has downgraded IDFC First Bank Ltd. to Neutral from Buy and reduced its 12 month target price to Rs 75 from Rs 95, citing near term headwinds following the bank’s removal from the Haryana government’s panel after a fraud incident.The brokerage has lowered its estimated earnings per share by 13 to 14 per cent, prompting the rating downgrade. It also trimmed loan growth estimates for FY27 and FY28 by 1 to 2 per cent and reduced deposit growth forecasts by up to 3 per cent.
Rs 590 Crore Fraud Triggers Deposit Outflows
The bank reported a fraud of Rs 590 crore in the accounts of the Haryana government involving certain employees. It has appointed KPMG to conduct a forensic audit, with the final report expected in four to five weeks.Since the incident, the bank has seen outflows of nearly Rs 200 crore from the Haryana government. Outstanding deposits linked to the state account for around 0.5 per cent of the bank’s total deposits.
Independent brokerage estimates suggest the suspected fraud amounts to about 0.9 per cent of the bank’s net worth and nearly 20 per cent of its FY26 pre tax profit.
CASA Growth and Margins Under Pressure
According to BofA analysts, the incident poses risks to current account and savings account growth, may increase funding costs, and could slightly ease loan growth. Higher operating expenditure on risk management and compliance is also expected.The brokerage noted that disruptions in CASA and rising competition in deposit markets are likely to exert pressure on net interest margins. As a result, it implemented a 13 to 14 per cent cut to its EPS estimates for FY26 and FY27.
Despite the near term challenges, the brokerage remains constructive on the bank’s medium term prospects, citing continued healthy growth and improving asset returns.
Share Price Movement
Shares of IDFC First Bank have declined 12.50 per cent this week. The stock closed at Rs 72.54 on Thursday, even as it recorded a 3.30 per cent intraday gain.Disclaimer: Due care and diligence have been taken in compiling and presenting news and market-related content. However, errors or omissions may arise despite such efforts.
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