Mahindra Finance Faces Up To Rs 150-Crore Hit From Fraud: What Went On At Its Mizoram Branch

The unearthing of the fraud at a branch in Aizawl unnerved equity investors, resulting in its share price sinking to its lowest in over a month on Tuesday and leading to the postponement of the quarterly earnings announcement that was scheduled for the day.

A first information report was filed with the Mizoram Police around March 20 on the basis of an internal investigation, the person said on the condition of anonymity.

An area manager and two business executives from the direct marketing vertical were forging the Aadhaar and voter identification cards for loan processing for retail vehicles, the person said. The direct marketing department at the non-bank entity deals with sales for auto and other vehicle loans and refinancing.

The suspects have been arrested by police and the case is likely to have been transferred to the crime investigation department, the person said.

While the person estimated the amount involved in the fraud to be around Rs 80 crore, Mahindra Finance, in its regulatory filing on Tuesday, said that the financial impact is "unlikely to exceed Rs 150 crore".

Queries sent to Mahindra Finance did not elicit a response at the time of publication.

The non-banking financial company has a net worth of Rs 82,770 crore and offers services such as vehicle loans, SME finance, personal loans and housing finance. The eastern region—namely states of Arunachal Pradesh, Assam, Bihar, Jharkhand, Meghalaya, Mizoram, Orissa, Sikkim, Tripura, West Bengal—accounted for 19% of the total disbursements in the first nine months of the financial year 2024.

Incidentally, the Reserve Bank of India slapped a penalty of Rs 6.8 crore on Mahindra Finance in April last year, based on a statutory inspection by the central bank regarding its financial position in fiscals 2019 and 2020.

The company was non-compliant with the RBI's directions relating to the disclosure of the annualised rate of interest charged on loans to the borrowers at the time of sanction. The non-bank entity failed to notify its borrowers of the changes in terms and conditions of the loan when it charged a higher rate of interest during fiscals 2019, 2020 and 2021 than what was communicated at the time of sanction, the central bank had said.