Can Fin Homes conducted a conference call 26 July 2023 to discuss the event of fraud at Ambala branch. Suresh Iyer. MD and CEO of the company addressed the call:

Highlights:

The company has reported a financial fraud to the extent of Rs 38.53 crore committed by the employees of the Ambala branch.

The employees have mis-utilized check signing powers to withdraw Rs 38.53 crore in the name of family members, instead of disbursements.

The event has been discovered at the time of process improvement action. As per the company, there is no other such observation at other branches and all branches have been scanned for the lapse.

The issue is a procedural back office issue.

The amount has been withdrawn from pooled account maintained with Canara Bank for the purpose of collections and disbursements.

This account witnessed monthly disbursements of Rs 25 crore and there is always an excess balance of Rs 50-60 crore maintained in this account.

The company has scanned account till April 2021 and noticed that over a period of time, since November 2021 the employees of the Ambala branch of the company have been committing fraud through 200 transactions.

The fraud was detected on 24 July 2023. There was lack of oversight in diversion of funds.

The company estimates a one-time impact on profitability to the extent of the amount misappropriated but no impact on assets or asset quality.

An FIR has been lodged with the Ambala Police and involved employee has been arrested.

The full impact of Rs 38.53 crore will be provided in Q2FY24 as there are no underlying assets.

The recoveries are expected as per police action and court proceedings and provisions will be written back to the extent of recoveries,

The company has already started centralized disbursement process and withdrawn local cheque signing powers.

It has already decentralized the DSA payments. The company has also centralized the legal payments. It has also introduced fraud control team.

The company is also introducing online digital reconciliation process with Canara Bank.

On account of provisions, the profit will be down to Rs 145-150 crore in Q2FY2024.

As the company is introducing centralized disbursements system, there could be some impact on business particularly in the north branches.

Thus, expect the disbursements to remain flat on sequential basis or rise 5% in Q2FY24.

The company has informed Canara Bank about the event and the bank is offering full support.