India's M&M Financial discovers fraud at one branch, delays Q4 results to May 30 (updated)

Mahindra and Mahindra Financial Services

23/04/2024 09:03

(Adds date for Q4 results in paragraph 5, analyst reaction in
paragraphs 7-10; updates share price)
       BENGALURU/MUMBAI, April 23 (Reuters) - India's Mahindra
and Mahindra Financial Services  MMFS.NS  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.
 
 ($1 = 83.3090 Indian rupees)

 (Reporting by Hritam Mukherjee in Bengaluru and Siddhi Nayak in
Mumbai; Editing by Savio D'Souza)
 ((Hritam.Mukherjee@thomsonreuters.com; X: @MukherjeeHritam;))