Sebi bars IndusInd Bank's ex-CEO, 4 others from securities market

Sebi has restrained five IndusInd Bank executives and impounded Rs 19.78 crore for allegedly using price-sensitive information to sell shares before a market drop

The Securities and Exchange Board of India (Sebi) on Wednesday barred IndusInd Bank’s former managing director and chief executive Sumant Kathpalia, ex-deputy CEO Arun Khurana, and three other senior executives from trading in securities — directly or indirectly — for alleged breach of insider trading rules. The markets regulator also directed them to disgorge a total of ₹19.78 crore. 

In an ex-parte interim order, Sebi instructed Khurana to pay up ₹14.39 crore and Kathpalia ₹5.2 crore. The disgorgement amounts are based on losses avoided by the five individuals by selling shares while allegedly being in possession of unpublished price-sensitive information (UPSI) regarding discrepancies in the bank’s derivatives portfolio accounting. 

According to the regulator’s findings, Khurana sold 348,000 shares and Kathpalia 125,000 shares even as they were aware of the discrepancies. IndusInd Bank’s share price fell by 27 per cent after the information was made public. 

Sebi held that there was no evidence the information was generally available to the market at the time of the trades. 

Furthermore, the markets regulator is also conducting a detailed inquiry into alleged insider trading and disclosure violations involving other suspects. The investigation is expected to be completed expeditiously. 

Stock exchanges confirmed that no trading plans were filed by IndusInd executives for FY24 and FY25. A trading plan is a pre-decided execution of trades for company insiders, even when they possess UPSI.   

Sebi noted that the bank’s chief financial officer had flagged discrepancies in November 2023. 

 

It further underscored that a significant opportunity to remediate and report the discrepancies earlier than the March 10 disclosure was missed. The failure to disclose these discrepancies is under examination.

 

“Indulging into insider trading activities while being an insider and in possession of UPSI tantamounts to committing fraud upon the innocent investors and jeopardising their interest, who did not have access to the material information,” said Kamlesh Varshney, whole-time member Sebi.

 

Sebi also clarified that it had initiated the examination suo motu on March 10 and that the investigation remains open, contrary to claims in some media reports.

 

IndusInd Bank’s March disclosure stated that the discrepancies in the account balance of its derivatives portfolio had an adverse impact of ₹1,529 crore, representing 2.35 per cent of the lender’s net worth as of December 2024. However, an email from KPMG, following external validation, showed ₹2,093 crore as the negative impact due to discrepancies as of December 2023.

 

In other words, the bank took over a year to make a public disclosure in this regard.

 

Sebi’s findings suggest the bank had long been monitoring the discrepancies and had been preparing to report them to the Reserve Bank of India.

 

“Vide emails dated December 16, 2023, March 6, 2024, and May 05, 2024, figures of discrepancies ₹1,572 crore, ₹1,776.49 crore, and ₹2,361.69 crore for period ended September 2023, December 2023, and March 2024, respectively, were circulated amongst the employees of IndusInd,” noted Sebi order.