Nice statement from the CEO: CEO ‘Vows No One Will Be Spared’
CEO V. Vaidyanathan described the event as a physical, non-digital breach involving forged checks and manual debit instructions. “This is, let me say, the oldest kind of fraud probably known to banking,” Vaidyanathan said. "How this has happened is obviously due to the connivance of employees.
The article says that This incident will pass through the P&L as and when it comes, and we will take it out."
If a company with a market cap of ₹71,800 CR and a share price of ₹83.51 reports ₹590 CR misappropriation, what will its new share price be? How is the fair market value calculated for banks?
Answer:
1. New Share Price Calculation:
Current Market Cap = ₹71,800 CR
Misappropriation = ₹590 CR
New Market Cap = ₹71,800 CR - ₹590 CR = ₹71,210 CR
New Share Price = New Market Cap / Shares Outstanding = ₹71,210 CR / 86.03 CR = ₹82.7
The new share price is ₹82.7.
Methods to Find New Fair Market Value:
Earnings Adjustment: Adjust for the misappropriation’s impact on earnings.
Discounted Cash Flow (DCF): Adjust future cash flows for the misappropriation’s impact on operations.
Peer Comparison: Compare with industry peers using P/E ratio or EBITDA multiples.
P/E Ratio Adjustment: Adjust the P/E ratio based on market sentiment and profitability changes.
For Banks:
For banks, Price-to-Book (P/B) ratio is a common method for valuation rather than just P/E ratio:
P/B Ratio is used because banks hold large amounts of assets and liabilities on their balance sheets.
The Book Value (net assets) is adjusted for non-performing assets (NPAs), loan loss provisions, and regulatory capital requirements. The market price reflects this adjusted book value.
For example, if a bank’s book value is ₹100 per share, and its P/B ratio is 2, the fair value would be ₹200 per share. Misappropriations or scandals could lead to a significant reduction in P/B ratio.
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Based on the additional information provided for the bank’s financials, we can refine the calculations for IDFC First Bank’s fair market value, taking into account the key ratios and performance indicators. Here’s how we can proceed:
Key Data from the Table:
Price to Book Value Adjusted (P/B) = 1.39
Book Value per Share (BVSH) = ₹52.1 (as of March '25)
Enterprise Value (EV) = ₹317,243.5 CR
Market Cap per Sales = 8.7 (not directly needed for P/B-based valuation)
Steps for Fair Market Value Calculation for IDFC First Bank:
Price to Book Value (P/B) Adjustment Method:
P/B Ratio: 1.39
Book Value per Share: ₹52.1 (as of March '25)Using the P/B ratio, we calculate the Market Price per share:Market Price per Share=P/B Ratio×Book Value per Share\text{Market Price per Share} = \text{P/B Ratio} \times \text{Book Value per Share}Market Price per Share=P/B Ratio×Book Value per Share Market Price per Share=1.39×52.1=₹72.5\text{Market Price per Share} = 1.39 \times 52.1 = ₹72.5Market Price per Share=1.39×52.1=₹72.5So, the fair market value based on the P/B ratio method is ₹72.5 per share.
Impact of Misappropriation:
The reported ₹590 CR misappropriation would likely reduce the bank’s book value and could also affect the P/B ratio depending on how much the market perceives this misappropriation to affect the bank’s future performance. If we assume a 10% reduction in the P/B ratio due to the incident:
Adjusted P/B ratio = 1.39 × 0.9 = 1.251The adjusted new market price would be:Adjusted Market Price=1.251×52.1=₹65.2\text{Adjusted Market Price} = 1.251 \times 52.1 = ₹65.2Adjusted Market Price=1.251×52.1=₹65.2So, after accounting for the misappropriation, the new market price could be around ₹65.2 per share.
Enterprise Value (EV) Method:
EV = ₹317,243.5 CR
To find the market cap using the EV method, we use the formula:Market Cap=EV−Debt+Cash\text{Market Cap} = \text{EV} - \text{Debt} + \text{Cash}Market Cap=EV−Debt+CashSince we don’t have the exact values for debt and cash, we can use the Market Cap per Sales ratio as an approximation for the company’s sales and valuation adjustments.
Other Considerations:
Return on Equity (ROE): 84.6% indicates high profitability, and this would generally support a higher P/B ratio.
Earnings Yield: The earnings yield is 0.1%, indicating the bank might have low earnings relative to its market cap, which could negatively impact the market value.
Conclusion:
Based on P/B ratio and assuming a misappropriation impact:
The initial fair market value is ₹72.5 per share.
After adjusting for misappropriation, the new fair market value could drop to ₹65.2 per share.
Final Thoughts:
Given the strong profitability (ROE) and high P/B ratio (adjusted for misappropriation), IDFC First Bank is still valued highly by market standards, but the misappropriation will likely cause a moderate drop in market price. For a more precise estimate, more details about the bank’s debt, cash flows, and regulatory actions would be needed.
I posted this 22 minutes back and you were able to respond with such a long, grammatically correct, without any spelling mistake essay in just 5 minutes.
Are you the new anthropic… which people are talking about… I am going to sell my TCS shares…in just 5 minutes this long essay,
However, the core point I wanted to know was Shareholders got hit is there any other mechanism to adjust this loss without hitting the simple shareholder -
this, the anthropic has not addressed…this mean, the anthropic is not so smart after all, i reverse not to sell TCS…
EDIT: This is after reading the essay in detail.
The new share price should be 82.7, but market says 69.7
Methods to find new fair value - All this are theory, no one will be able to do this when a fraud is discovered.
Reminds me of Shukla and Grewal - Advanced Accountancy Text Book example.
Rest did not understand a thing. No wonder I just got 86 out of 100 in accountancy in B.Com.
Conclusion: the market price, the market will determine, not these ratios. Right now 70.40
Wondering how companies and banks can buffer themselves with these kind of losses, do they create provisions specfic for such instances. Does insurance pay up some portion, will there be some claw back effect, can the law finally catch the beneficiary and return the amount.
Nothing works in business but the sentiments and the future outlook.
If they can defrauded Govt, no one is safe.
People and companies might go for other banks this will reduce their profit and eventually loss of business (book value =zero)
Well, for a change from the norm, Since you have made the effort for that above reply, I thought I will type this in myself without using AI to proof read my replies.
For context, I don’t even bother tying nowadays, its all voice input to the AI.
Haven’t you started using AI yet ? Because, someone familiar with that would have recognized my earlier reply to be a product of ChatGPT. You also mentioned Anthropic, from first hand experience I can say Anthropic is light years ahead of ChatGPT, I didn’t want to use up my Anthropic tokens for something ChatGPT might suffice.
Also, the purpose was not to find an exact answer, but for readers who might stumble across this thread can import the question into their thinking sphere, so its a bit of learning for everyone. The ones who already know how such situations work in real world will be challenged to find new answers and explore new horizons. Doing my bit to keep pushing the limits of peoples thinking boundaries.
This guy keeps talking about appointing forensic auditors and how he plans to write it off through P&L; but is there any efforts to recover it ? This large sums cant go without trail and its not like its all spent by the employees. Even with a few crores its difficult to hid it without a trail.
Hope they focus on recovering the 590 cr and bringing it back to the books and not the easiest way to write it off.
These days i don’t bother reading AI type posts either, hard to say what kind of effort went into posting it. So i just skip. In 5mins someone can post voluminous replies. So its no an instant no for me.
Currently, AFAICT, almost all posts here are from humans. I could only tell your post(and some of your previous posts) is AI generated. So instead of asking everyone else to disclose, it would be best if you disclosed it: You can also use AI to generate the disclosure. Less time wasted as a whole for the community.
AI generated does not mean the original thought is not mine. Passing it though an AI saves all the time from correcting typos. grammatical mistakes and making it legible for reading.
If you’re only using it to correct typos and grammatical mistakes, I don’t think there’s any need to disclose. If you’re using it to generate entire sentences to paragraphs, it’s best you disclose, even if the original thought was yours. We’re here to talk to other humans. If we want to know what AI thinks, we can ask it.
From the bank’s statement, it looks like a misappropriation of funds by some employees. But from Haryana Govt’s notification to disempanel IDFC & AU Banks, it looks like they didn’t book FD despite clear instructions and left the money in Saving/Current A/Cs which lead to loss of interest revenue, probably to boost their CASA ratios. In first case, employees are at fault, in second its management fault.
Thats the only thing I undestood in this case
Exactly. As these are govt ac they cannot have SB AC and int on ca will be nil unlike sb ac. Banks love money in ca where int is nil. This could be one of the reason.
The concerned must have thought that govt wont notice this. All speculation only
What irritates me is that they look at profits to offset and say things this too will pass. Same with indus bank. 500 plus crore is not a joke. Wonder what the finance team at the govt end was doing. In this time of internet banking etc and reconciliation happening on auto mode from bank statement strange the finance team of the customer did not pick it. They came to know when wanted to close the ac. Crazy
Reminds me of the IndusInd saga.
For those who r planning to build position in the Bank plz beware.
Corruption and mismanagement charges r serious ones.
Institutional Investors will stay away. Price will slide slowly.
Bad news comes in between. price gaps down.
My advice is to wait for a few quartes.
