Can Fin Homes Strengthens Its Internal Processes To Mitigate Fraud Risks

Housing finance company Can Fin Homes Ltd. has taken specific measures to address frauds like the one it reported at its Ambala branch, according to its Managing Director and Chief Executive Officer Suresh S Iyer.

"The reason why this case happened was reconciliation and control at the branch level, and decentralisation of the entire disbursement process," Iyer told BQ Prime on Wednesday.

"We have now centralised disbursements. Before the actual disbursement, all the disbursements post Oct. 1 will be now verified at the head office and post that, the disbursements or demand drafts will be prepared," he said.

The second control measure, Iyer said, is centralised reconciliation. "We are also going for online reconciliation process which will be implemented very shortly."

Besides, all loan sanctions will be reviewed at the head office, the company's investor presentation said.

In an exchange filing on July 25, Can Fin Homes revealed that employees of its Ambala branch had committed fraud over a period of time by transferring funds to various personal bank accounts by signing cheques.

While such a case is only limited to the Ambala branch, it is the second time that the company has had fraud incidents in the recent past. In May 2022, it reported a fraud involving fake income tax returns in 37 accounts at the Can Fin Homes branch in Bhilwara.

Can Fin Homes on Tuesday reported an 11% on-year rise in its net profit to Rs 158.07 crore in the September quarter. Sequentially, however, it is a 13% drawdown on account of provisions set aside against the misappropriation fraud.

The squeeze on Can Fin Homes' net profit would have been marginal excluding the fraud impact. It would have posted a net profit of Rs 237 crore, as compared with Rs 240 crore profit in the previous year, according to the presentation.

Asset quality worsened as the gross non-performing asset ratio of the company rose by 13 bps to 0.76% during the quarter. The net NPA ratio, too, increased 9 bps to 0.43%. Can Fin Homes' provision coverage ratio stood at 44% as of Sep. 30, excluding the management overlay. PCR was at 43% a year ago, and 47% in the previous quarter.

"Management overlay is over and above the required provisions. We have taken excess provision as a matter of prudence to improve PCR to the extent of Rs 17.3 crore," he said.

As of Sep. 30, the net interest margin of Can Fin Homes stood at 3.80%, 25 bps higher from the year ago.

On being asked about the impact of higher rate hikes on the loan book, Iyer said it has had negligible impact due to restructured loans.

"Impact of rate revision has not impacted repayment for our customers in affordable and non-affordable segment. Whatever little spike in NPAs we have seen is mainly because of the restructuring," he said.

In the September quarter, Can Fin Homes' loan book rose 16% year-on-year at Rs 33,359 crore. However, the rate of growth has been slowing down due to weak sentiment after detection of the fraud, Iyer said.

By the end of the ongoing financial year, Can Fin Homes expects loan growth at the rate of 18%, backed by festive season demand.