Capital market regulator Sebi is investigating senior officials of IndusInd Bank for trading in the shares of client companies, sources have told Moneycontrol.
Sebi is already investigating the role of former top management of the bank for trading in the bank’s shares while being aware of accounting discrepancies in its currency derivatives portfolio.
The new case is different and related to trading in the shares of listed companies that were clients of IndusInd Bank.
IndusInd Bank has not yet reply to an email query seeking response on the investigation. Email seeking comments from Sebi also did not elicit any response.
What is the Case About?
The concerned bank officials were getting various updates on demerger, credit approval, stake sale, acquisition, investment from big investors in these companies, and placed trades on the basis of this information before the news became public.
A whistleblower has raised the issue before the board, and up to six bank officials are currently under scanner over insider trading allegations. Sources told Moneycontrol that the family members of these bank officials too may be under the regulatory radar for what will be considered as insider trading.
One source told Moneycontrol that the regulator is in possession of crucial evidence relating to the matter. “The Sebi team first sought the details on email and later visited the bank HQ in the second week of April and took documents like all the whistleblower complaints and minutes of the audit committee board (ACB), where the whistleblower issue was forwarded,” the source said.
The source added that the bank management did not escalate the matter suitably, once the allegations surfaced. “The ACB of the bank sought an enquiry report from two law firms which suggested serious concerns related to the dealing of unpublished price-sensitive information (UPSI) in the bank, but instead of reporting the same to Sebi and taking action as per bank’s own insider trading policy, the management decided to seek the opinion of an ex-judge, which allegedly suggested that the issue does not require reporting to Sebi”. Some of these bank executives have had a smooth exit from the bank, while others are still working.
Trades in Key Companies
Another source told Moneycontrol the names of key listed companies, in which the bank executives had placed bets before information was available to the public. “A few trades that came to light were of Kolkata-based companies like Kesoram Industries, Birla Tyres, Eveready Industries, McLeod Russel, etc. Though Sebi investigation can only ascertain the full details of insider trading, it is important to clear that these companies are not, in any manner, under regulatory radar in the case.”
One regulatory source confirmed that the investigation into insider trading charges is ‘ongoing’, but did not divulge further details.
Another former regulatory officer explained that normally it could take Sebi around 3-4 months to pass an interim order, based on documentary evidences, exchanges’ trade data and Sebi’s own surveillance system, though it may depend on a case-to-case basis. However, in this case, if Sebi has collected the ACB minutes, it should be easy to conclude the wrongdoing.
Who Could be Responsible?
The former regulatory official said that the lender’s compliance head could be in the dock. “If Sebi finds that IndusInd Bank had deliberately suppressed the issue and did not report the matter, the compliance officer may face the consequence, as per the insider trading regulation of Sebi.”
As per norms, Sebi usually does not comment on case-specific matters, unless it is required in larger public interest.
The regulator is concerned over the complaints of suspected insider trading cases in banks by staff as, many times, because of the nature of the job and clients’ needs, bankers end up with access to various UPSI.
Besides loan sanctions, bank officials also get to know about big deals, debt payment, debt settlement, insolvency-related proceedings etc., before it becomes public. Banking and non-banking company officials are also aware of any regulatory action or relief against their own companies. and if company’s insider trading policy is not implemented in full spirit, it is prone to misuse.
To sensitise the boards of listed banks, Sebi is planning a crash course on insider trading, so that the top management takes the matter seriously and implements effective steps. Sebi may launch this crash course next month, and is likely to call the compliance officer, MD and CEO, and a few independent board members of the bank to attend.
Listed companies are required to draft their own insider trading policy in alignment with Sebi’s insider trading regulations. Moneycontrol had reported about the Sebi’s sensitisation plan for banks’s top management on May 5.
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