IDFC First Bank shares down 16%, look to recovery from lows after multiple block deals

Shares of IDFC First Bank Ltd., the Mumbai-based private lender, fell as much as 20%, extending early losses on Monday, February 23, after it disclosed a fraud worth ₹590 crore on Sunday. This is the biggest single-day fall seen for the stock since March 2020.

After the first few minutes of the trading session, as many as 3.17 crore shares of the lender changed hands in a block deal. The number of shares that changed hands amount to 0.4% of the total outstanding equity, taking the total transaction value to ₹236 crore.

As per its exchange filing, the bank received a request from a Haryana Government department for closure of its account and transfer of its fund to another bank. It was during this process that certain discrepancies were observed in the amount mentioned compared to the account balance.

The matter refers to the lender's branch in Chandigarh. It also clarified that the sum does not affect other customers of the bank and that the impact may be determined based on the receipt of further information, claims validation, recoveries of any nature, and other aspects, including the legal recovery process.

Four officials, suspected in this matter, have been placed under suspension by the lender, pending investigation.

The sum is significant as the lender had reported a net profit of ₹503 crore during the December quarter, meaning that the amount involved is higher than the net profit for an entire quarter.

Forensic Auditor Appointed

In its filing earlier on Sunday, IDFC First Bank had mentioned that it is in the process of appointing an external agency to conduct a forensic audit. In a separate disclosure on Sunday evening, the lender disclosed that it has appointed KPMG to initiate an independent forensic audit in this matter.

Why Is This Significant?

Not only is the ₹590 crore sum higher than IDFC First Bank's Q3 net profit, it is 0.21% of the total deposits and 1.2% of the total net worth.

Analysts who have coverage on the stock, believe that the sum is more than 20% of its entire projected net profit for financial year 2026 and could have an impact of 18 basis points to its CET-1 ratio, which is currently at 14.23%.

The incident could also impact the bank's overall deposit growth trajectory, as per analysts. At the end of the December quarter, the lender's Credit-Deposit Ratio (CD) was at 93.9%, which it intends to bring down to the mid-80s.

Concall Takeaways

During the conference call, the management of IDFC First Bank said that the issue is confined only to one branch and the best case assessment is seen as ₹590 crore and they do not expect the actual number to be any different.

IDFC First Bank's MD & CEO V Vaidyanathan said that they have never seen an incident like this in the 10 years of the bank and that their systems and controls are in place. He also added that the incident is not a digital but a physical one.

With regards to the bank's business, Vaidyanathan said that the bank remains in a fundamentally strong position, and credit costs will keep coming down. He also expects the lender's Net Interest Margins (NIMs) to improve in the fourth quarter.

Analysts Say

Investec has cut its price target on IDFC First Bank to ₹92 from ₹105 earlier, while Jefferies has maintained its "buy" recommendation on the stock with a price target of ₹100, stating that the bank will need to strengthen its operational controls and clarify that the issue has not spread to other clients.

29 analysts have coverage on IDFC First Bank, of which 18 have a "buy" rating, six say "hold", and five have a "sell" rating.

Shares of IDFC First Bank are down 16% on Monday at ₹70.12. The stock was trading close to its 52-week high of ₹87, and has gained nearly 40% during the last 12 months.