RBI lens on ₹150-crore KYC fraud at M&M Fin Services
FORGERY. Embezzlement reported at NBFC’s North-East branch; RBI seen placing curbs
The RBI is looking into a ₹150crore KYC lapse disclosed by Mahindra and Mahindra Financial Services on Tuesday.
According to highly placed sources aware of the matter, the Reserve Bank of India could impose some sort of curbs on the NBFC on acquisition of new businesses.
“The nature of restrictions will depend on the outcome of investigation of the matter,” said a person with knowledge of the development. Whether these curbs will have a pan-India impact on the business or would be restricted to certain branches isn’t clear yet.
Emails sent to M&M Finance and the RBI remained unanswered till press time.
KYC LAPSES
Early on Tuesday, when India’s No 2 vehicle financier was slated to announce March quarter results, M&M Finance, in a stock exchange filing, said that a fraud in retail vehicle loans was uncovered at
The eastern region accounts for 11% of the lender’s total advances, or ₹10,273 crore of total loans, per M&M Finance’s December quarter investor presentation
one of its branches in the North-East. The fraud involved forgery of KYC (know your customer) documents leading to embezzlement of company funds. The magnitude of the fraud, according to the company, is expected to be not more than ₹150 crore.
“Investigations are underway and necessary corrective actions have been identified and are at various stages of implementation, including arrest of few people involved,” the company said in its filing. Area business manager and other employees of the branch concerned are said to be involved
in the fraud. The issue has also been reported to the RBI’s Central Fraud Monitoring Cell. It is pertinent to note that in September 2022, the RBI asked M&M Finance to cease recovery or repossession of assets from borrowers though outsourcing arrangements citing material supervisory concerns.
FINANCIAL EFFECT
The eastern region accounts for 11 per cent of the lender’s total advances, or ₹10,273 crore of total loans, per M&M Finance’s December quarter investor presentation. The company’s total loan book stood at ₹93,392 crore as on December 31, 2023.
While the exact proportion of business originating from the North-East could not be ascertained from the investor presentation, sources say the amount involved in the fraud is material to the business originating from the region.
Suresh Ganapathy, Managing Director and Head of Financial Services Research, Macquarie Capital, pegs the decline in the Q4 profit before tax at 15 per cent assuming the company takes account of the same in the March FY24 quarter. “From a qualitative perspective, we believe issues such as regulatory non-compliance or fraud inhibit re-rating as investor confidence takes a hit,” he added.