M&M Financial shares plunge 8% following revealation of fraud

M&M Financial: Shares of M&M Financial Services plummeted by 8 per cent on Tuesday, reaching an intraday low of Rs 256.5 apiece on the National Stock Exchange, in the wake of the company's disclosure of fraudulent activities at one of its branches.

The company has delayed the release of its fourth-quarter results until May 30. Investor sentiment took a sharp downturn as news broke of the financial services firm's uncovering of embezzlement involving company funds through the forgery of documents related to retail vehicle loans.

Analysts have expressed apprehension over the implications of the fraud discovery, with many revising their outlook on M&M Financial's performance and prospects.

"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," stated M&M Financial. 

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.”

(With Reuters inputs.)