Mint Explainer: How Mahindra Finance unearthed a ₹150 cr employee-dealer fraud

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Mumbai: Non-bank financier Mahindra and Mahindra Financial Services, in a regulatory filing last week, said it has detected fraud at one of its branches in the northeast. The fraud involved retail vehicle loans and included forgery of know-your-customer (KYC) documents, leading to the embezzlement of huge funds. According to the lender, the financial impact of the fraud was estimated at up to 150 crore. Following a complaint, the Mizoram police have made several arrests, uncovering details of the fraud. Mint takes a look at how a clutch of employees, car dealers and others came together to perpetrate this crime.

When did the company approach the police?

Ankit Bagree, circle head, Mahindra Finance, registered a first information report (FIR) at Aizawl police station on 20 March, alleging financial fraud by a 41-year-old area business manager in Mizoram Jakir Hussain, as per a press release by Mizoram Police on 26 April. Then on 29 March, another case was registered at the Crime and Economic Offence police station based on a complaint by Chanpreet Singh, business head of Mahindra Finance.

Who were the entities involved in this alleged fraud?

According to Mizoram Police, Hussain, and some employees of the company’s branch were part of this. The police said that Hussain and other associates, opened a fake bank account in 2020 under the name of “Mahindra Finance Ltd” at the Khatla Branch of Mizoram Rural Bank (MRB). He, and two other individuals “impersonated the country business head and submitted forged documents”.

According to the police, this account was used to keep the money defrauded for over three years. The police also found that Hussain prepared fake documents and said they were senior officials of the company and opened the bank account. The bank account was set up to receive payments from car dealers, it said. “Fake stamps, seals, and documents were created for the purpose of opening this account.” The police have so far arrested 11 accused in this case.

How did they manage to pull this off?

Hussain, the police said, sanctioned vehicle loans by creating fake files for over 2,000 ‘ghost’ or fictional customers. Then he and others would make regular equated monthly instalment (EMI) payments for these loans using money from the fake bank account. This was done so that these loan accounts do not turn non-performing and to avoid any suspicions, it said. According to police, Hussain had hired a person called Manoj Sunar for a salary of 15,000 per month.

“Jakir (Hussain) also used to prepare forged stamps for documentation purpose(s). At the time of the company’s audit, Jakir (Hussain) used to remove these fake files from (the) office and were transported to the house of Manoj.” Police said they recovered seven sacks containing 549 files for years 2022, 2023 and 2024, and 25 forged stamps.

According to police, the accused “used the loopholes in the company’s oversight process, KYC verification process, auditing, tele-verification and supervisory mechanism to continue their activities over a long period of time.”

How did analysts react to Mahindra Finance’s disclosure of the fraud?

Suresh Ganapathy, managing director and head of financial Services research, Macquarie Capital, said that assuming Mahindra Finance provides for the impact in Q4 of FY24, there could be a 15% decline in estimated profit before tax. “From a qualitative aspect, we believe issues such as regulatory noncompliance or fraud inhibit re-rating as investor confidence takes a hit,” he said on 23 April.

Analysts at Emkay Global Financial Services said the incident, yet again, brings the sanctity of the company’s processes under a cloud. “The event will affect investor confidence in MMFS at least for now,” Emkay said in a note on 24 April.

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Pooja Gupta

CA Pooja Gupta (CA, ISA, having 15 years of experience. Educator and Digital Creator

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CA Pooja Gupta (CA, ISA, having 15 years of experience. Educator and Digital Creator

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