A startling revelation emerged from the financial sector as Mahindra & Mahindra Financial Services Ltd. reported a significant impact on its quarterly and yearly profits due to a fraudulent activity at one of its Northeastern branches, totaling a staggering Rs 135.86 crore.
Magnitude of the Fraud
The company disclosed in a filing to the stock exchange that the fraudulent activity amounted to Rs 135.86 crore, emphasizing its intent to recover certain sums pending law enforcement interventions.
Unveiling the Fraud
On April 23, M&M Financial uncovered a fraudulent scheme involving retail vehicle loans valued at Rs 150 crore. The scheme revolved around fabricated KYC documents, ultimately leading to misappropriation of company funds and necessitating a delay in the release of its Q4 results.
Location and Fallout
The malpractice transpired at the Aizawl branch in Mizoram, as reported by NDTV Profit. An FIR was lodged with the Mizoram police on March 20, resulting in the arrest of an area manager and two business executives from the direct marketing division.
Internal Investigation by mahindra finance
Mahindra Finance attributed the fraudulent activity to a grave collusion between its employees and external entities, including vehicle dealers and bank officials. To delve deeper into the matter, the company engaged a law firm and an accounting entity to conduct thorough assessments.
Identification of Irregularities
The investigation revealed 2,887 loan accounts with potential fraudulent undertones, with an outstanding net recoverable balance of Rs 135.9 crore as of March 31, 2024, duly accounted for. Additionally, the company made a one-time provision of Rs 136 crore in its Q4 results.
Preventive Measures
In response to the incident, the company undertook a meticulous review of customer contracts nationwide, reassuring stakeholders that no further instances of similar fraud have been uncovered elsewhere. It has also initiated a restoration process to stabilize operations at the affected branch.
Enhancing Control Measures
Mahindra Finance outlined plans to reinforce controls concerning document scrutiny and due diligence during customer onboarding, aiming to prevent future occurrences of such fraudulent activities.
The financial fraud saga at Mahindra Finance serves as a stark reminder of the vulnerabilities within the financial sector and the imperative need for stringent oversight and control mechanisms. As the company navigates through the aftermath, it remains committed to rectifying the situation and fortifying its operational resilience against similar threats in the future.
