Mahindra Finance Faces Up To Rs 150-Crore Hit From Fraud: What Went On At Its Mizoram Branch

The financial fraud at one of the branches of Mahindra & Mahindra Financial Services Ltd. occurred over a span of two to three years and it was only uncovered in March, according to people with direct knowledge of the matter. The unearthing of the fraud at a branch in Aizawl unnerved equity investors, resulting in its share price sinking to its lowest in over a month on Tuesday and leading to the postponement of the quarterly earnings announcement that was scheduled for the day.A first information report was filed with the Mizoram Police around March 20 on the basis of an internal investigation, the person said on the condition of anonymity.An area manager and two business executives from the direct marketing vertical were forging the Aadhaar and voter identification cards for loan processing for retail vehicles, the person said. The direct marketing department at the non-bank entity deals with sales for auto and other vehicle loans and refinancing.The suspects have been arrested by police and the case is likely to have been transferred to the crime investigation department, the person said.While the person estimated the amount involved in the fraud to be around Rs 80 crore, Mahindra Finance, in its regulatory filing on Tuesday, said that the financial impact is 'unlikely to exceed Rs 150 crore'.Queries sent to Mahindra Finance did not elicit a response at the time of publication.The non-banking financial company has a net worth of Rs 82,770 crore and offers services such as vehicle loans, SME finance, personal loans and housing finance. The eastern region—namely states of Arunachal Pradesh, Assam, Bihar, Jharkhand, Meghalaya, Mizoram, Orissa, Sikkim, Tripura, West Bengal—accounted for 19% of the total disbursements in the first nine months of the financial year 2024.Incidentally, the Reserve Bank of India slapped a penalty of Rs 6.8 crore on Mahindra Finance in April last year, based on a statutory inspection by the central bank regarding its financial position in fiscals 2019 and 2020.The company was non-compliant with the RBI's directions relating to the disclosure of the annualised rate of interest charged on loans to the borrowers at the time of sanction. The non-bank entity failed to notify its borrowers of the changes in terms and conditions of the loan when it charged a higher rate of interest during fiscals 2019, 2020 and 2021 than what was communicated at the time of sanction, the central bank had said..M&M Financial Services Uncovers Rs 150 Crore Fraud, Delays Q4 Results.In the December quarter, Mahindra Finance reported its standalone net profit at Rs 552.8 crore, down 12% year-on-year. The bottom line was weighed down by a twofold rise in provisions during the quarter.Its provisions for the quarter stood at Rs 3,655.4 crore at the end of December, on account of the expected credit loss on financial assets. The financier's loan book grew 26% year-on-year to Rs 97,048 crore. Its gross stage-3 assets stood at 3.9% in the third quarter, up from 4.3% in the previous quarter. Its net stage-3 assets were at 1.52%, in comparison with 1.71% a quarter ago.The development led to several brokerages raising concerns over the asset quality of the company. 'The estimated amount involved of Rs 150 crore is almost 3.7 times of average company disbursements of Rs 41 crore per branch, suggesting that fraud has been going on for several months or years,' Centrum Broking said in a research note on Tuesday.The brokerage estimated an impact of 22% on the company's earnings for the fourth quarter and 8.2% for fiscal 2024. This can also impede Mahindra Finance's net worth by about 0.8% in the last fiscal. A slowdown in the company's growth on account of strengthening internal processes is expected in the coming quarters, bearing an impact on disbursements.The investors derived comfort from improving asset quality at Mahindra Finance, but the adequacy of provisions to meet any such future contingencies is in question, Centrum Broking said.This development is expected to 'spook the confidence' in the company's asset quality once again, according to Citi. 'The event will be sentimentally negative for the stock.'On the NSE, Mahindra Finance's stock dropped as much as 8.02% during the day to Rs 256.50 apiece, the lowest since March 20. It closed 5.52% lower at Rs 263.45 apiece, as compared with a 0.14% advance in the benchmark Nifty..Mahindra Finance Sinks To One-Month Low After Uncovering Rs 150-Crore Fraud

Mahindra Finance Faces Up To Rs 150-Crore Hit From Fraud: What Went On At Its Mizoram Branch

The financial fraud occurred at a branch in Aizawl over a span of two to three years.

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