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Journalism of Courage
India’s Mahindra and Mahindra Financial Services uncovered company funds were embezzled by forging some documents for retail vehicle loans at one of its branches, the company said on Tuesday, sending its shares sliding as much as 8%.
The company, the non-bank financing arm of tractor-to-tech conglomerate Mahindra Group, said it discovered the fraud in late March and that it has taken some corrective actions, including the arrest of “few persons” involved.
“In respect of retail vehicle loans disbursed by the company the fraud involved forgery of KYC (know your customer) documents leading to embezzlement of company funds. The investigations in the matter are at an advanced stage,” M&M Financial said.
It estimated that the financial impact of the fraud is unlikely to exceed 1.50 billion rupees ($18 million).
The company was scheduled to report its results for the quarter that ended on March 31 on Tuesday but has now delayed that to May 30, M&M Financial said.
It did not disclose any further details on the fraud, including the amount embezzled or the names of the people involved.
“… We believe issues such as regulatory non-compliance or fraud inhibit re-rating as investor confidence takes a hit,” Macquarie analyst Suresh Ganapathy said in a note.
Ganapathy was referring to the central bank placing restrictions on M&M Financial using third-party services to recover loans due to “material supervisory concerns” in September 2022. These were lifted in January 2023.
“Unless governance and compliance structures are strengthened, longer-term re-rating will remain elusive.”
If M&M Financial accounted for the financial impact in the fourth quarter, Macquarie said it would weigh on its profit before tax estimate by 15% for the period.
The company’s shares were last down 4.4% at 266.55 rupees in afternoon trade.
