IDFC First Bank shares downgraded to 'Neutral' by BofA following fraud incident; stock reacts

Multinational brokerage Bank of America Securities (BofA) has downgraded IDFC First Bank to 'Neutral' from 'Buy', citing near-term headwinds following a fraud incident involving government accounts. The brokerage has also lowered its target price to Rs 75 from Rs 95 earlier.

According to BofA, IDFC First disclosed a fraud incident related to a Haryana government account, resulting in a reconciliation discrepancy of around Rs 590 crore. Following the disclosure, the Haryana government de-empanelled the bank. The lender has appointed KPMG to conduct a forensic audit, with a final report expected in four to five weeks.

The brokerage noted that since the incident, the bank has witnessed deposit outflows of approximately Rs 200 crore from Haryana government accounts. Government deposits account for about 8–10 per cent of the bank's total deposits, with the Haryana government's share being around 0.5 per cent of overall deposits. Prior to this development, the bank had not seen any significant withdrawal requests from other government accounts.

BofA believes the incident poses risks to CASA (current account savings account) growth in the near term, driven by potential deposit outflows and possible de-empanelment by other government entities. The brokerage also flagged a one-time profit and loss impact of Rs 590 crore. Pressure on CASA could elevate the bank's cost of funds and marginally impact loan growth, while higher risk management and compliance expenses may push up operating costs.

Factoring in these challenges, BofA has trimmed its loan growth estimates for FY27 and FY28 by 1–2 per cent and cut deposit growth projections by up to 3 per cent. The brokerage expects higher funding costs and competitive pressures in deposit markets to weigh on net interest margins. Consequently, it has reduced its EPS estimates for FY26 and FY27 by 13–14 per cent.

Meanwhile, shares of IDFC First Bank were trading 3.53 per cent higher at Rs 72.75 in Thursday's late deals. At this level, the stock remained 3 per cent below the brokerage's reduced target price of Rs 75.