Should SBI Chairman be urging investors to buy the bank’s stock?

State Bank of India (SBI) chairwoman Arundhati Bhattacharya speaks during an interview at the St. Petersburg International Economic Forum (SPIEF), Russia, June 2, 2017. REUTERS/Grigory Dukor - RTX38O0R

It is a good thing for chief executive officers and key management personnel to be concerned about the stock of their company, but another matter to be publicly hard selling it to prospective investors.

Earlier this week, State Bank of India chairman Arundhati Bhattacharya, stunned regulators and investors alike when she urged investors to buy shares of the bank. In an interview to a business daily she said: “From FY19 we will be much better. Therefore, I urge you all to buy our shares now. You won’t get it at such a price.”

Fund managers and some regulators claim that CEOs and promoters are increasingly trying to condition the market by talking up their stock, as the performance of the share price is a key result area. Also, compensation of key management personnel at many private companies is linked to the performance of the stock. However, in the case of public sector companies, this is not the case.

But in private sector firms, CEOs are accountable for the stock’s performance, which often results in them pushing the envelope. Promoters aspire to have their company’s stock in the portfolio of money managers and on the buy list of analysts, and yet, it can be in poor taste in senior management personnel publicly comment about the price of the stock.

What makes this development even more perplexing is that regulations are rather stringent in India. Listed entities are bound by listing agreement and disclosure requirements regulation of Sebi (2015), which clearly states that “The listed entity shall promptly inform to the stock exchange(s) of all information which shall have bearing on performance/operation of the listed entity or is price sensitive or shall affect payment of interest or dividend of non-convertible preference shares or redemption of non-convertible debt securities or redeemable preference.”

In response to an emailed questionnaire from Moneycontrol, an official spokesperson of SBI replied: “The statements made in the Interview have not been quoted in the right perspective and were not intended as a recommendation to buy stock of SBI. Based on the clarification given to ET they have removed the said statement from the online interview and further, we have advised ET to carry the said clarification in ET print edition.”

Of late, advisory firms claim that CEOs are increasingly talking up their stock and it requires tougher intervention by regulators.

Anil Singhvi, chairman of ICAN Investments Advisors, believes that there are two issues in such cases. He says: “First, CEOs need to be more responsible while talking about the company. And big companies too have to be made accountable when such comments are made. Second, regulators need to take appropriate action too. I find it very disturbing that there is discrimination between small and big companies.”

Lawyers and compliance officers claim that exchanges are not reacting fast enough to clamp down in such cases, especially if the companies are large or state-owned.