MUMBAI: With Haryana Chief Minister Nayab Singh Saini informing the state assembly that his government has recovered Rs 556 crore of the Rs 590-crore fraud carried out by some bank and government employees, the battered stock of IDFC First Bank closed in the green Tuesday, a day after losing nearly 20% of its value in the aftermath of the scam. Despite the bloodbath on Dalal Street wherein indices tanked more than 1%, the IDFC counter gained 1.3% to close at Rs 70.79.
The Rs 590-crore fraud involving Haryana government accounts is the result of a collusion between employees of the IDFC Bank and external parties and came to light last Sunday.
"Nearly Rs 556 crore, including nearly Rs 22 crore in interest, came back within 24 hours," Saini was quoted as telling the house earlier in the day.
On Sunday, the bank disclosed a Rs 590-crore fraud committed by its employees and others in accounts held by the Haryana government.
"I want to clarify before the House that the money concerning out government departments, the entire amount has been deposited back into our accounts...The recovery has been made within 24 hours," Saini said.
He said the bank had apprised the government that the incident primarily involved a particular branch of the bank in Chandigarh, involving four to five bank employees of middle and lower rung who colluded in the whole thing.
The government will ensure that anybody who is involved -- be it a bank employee, private individual or even a government employee -- will not be spared, he added.
While the government has said the Anti-Corruption Bureau would conduct an in-depth probe into the fraud, the bank has enlisted KPMG to conduct a forensic audit.
"We have formed a committee headed by the Finance Secretary in this matter," Saini had said on Monday.
The fraud is the result of a collusion between employees of the IDFC Bank and external parties, the bank Chief Executive V Vaidyanathan had said Monday.
In a specially convened call for investors and analysts ahead of the opening of the equity markets, Vaidyanathan said the bank will take some provisions as a result of the fraud.
Meanwhile, many brokerages on Tuesday gave a buy call on the stock but at lower than the current price level.
Analysts believe IDFC First Bank’s valuation reset reflects the worst-case earnings impact of the fraud disclosure.
After the sell-off, IDFC First Bank’s valuation dropped sharply, with the stock now trading at 1.34 times its price-to-book ratio: a 19 percent de-rating from its 5-year average of 1.6 times.
Chokkalingam G of Equinomics Research said this reset broadly matches the expected financial impact, as the bank is likely to make a 100% provision for the amount this quarter. This could result in either a marginal loss or a small profit in Q4, compared to a net profit of Rs 503 crore in Q3, he said.
“The bank’s net worth stood at Rs 41,000 crore at the end of December, and the fraud impact is less than 2% of this. In that sense, the stock has been punished a bit more than required. High-risk investors can consider buying the stock with a medium-to-long-term view,” he said. RBI governor Sanjay Malhotra had also said there was no systemic risk and that the fraud was confined to a limited set of accounts.
Analysts at Emkay Global said while the lapse may delay the bank’s near-term re-rating, it is unlikely to derail its long-term growth and return on assets recovery. They see the stock reaching Rs 80, down from its earlier target of 95, citing risks of partial withdrawals from other government accounts and possible second-order impact on business momentum and margins.
Motilal Oswal has a "neutral" rating with a target price of Rs 80, implying about 15-16% upside from the current levels, saying that the actual impact would depend on the quantum and timing of recoveries.
Meanwhile, Nomura reiterated a "buy", whereas Investec cut its target price to Rs 92 from Rs 105 but stayed positive on the growth outlook, citing strong core operating profit growth projections.