WhatsApp leak case: Sebi orders Axis Bank to conduct internal probe

Inquiry reveals lender's leaked earnings closely matched with actual figures; regulator asks Axis Bank to conduct inquiry and submit report within three months

The Securities and Exchange Board of India (Sebi) on Thursday pulled up Axis Bank for the alleged leak of its June-quarter earnings on social media platform WhatsApp. The market regulator said its preliminary examination showed “the messages circulated on WhatsApp groups almost matched with the quarter financial results of Axis Bank for June 2017, which were published subsequently”.
 
Sebi directed the bank to conduct an internal probe into the leak and submit its findings within three months. The inquiry should determine the people responsible for the leak, the regulator said. It also asked the private sector lender to “strengthen its processes, systems, controls” to ensure that such leaks were not repeated. 
 
Reacting to the development, Axis Bank said it had been working closely with Sebi during the course of preliminary examination into the leakage of Unpublished Price Sensitive Information ( UPSI) of listed companies, including that of the bank. "The bank adheres to highest norms of governance and reiterates its commitments to adequacy of processes, systems and controls, particularly to prevent unauthorised access to UPSI. The bank will work with Sebi and the best experts in the field to investigate the matter and will take action as appropriate," said Rajesh Dahiya, executive director (corporate centre), Axis Bank.
 
Market observers said Sebi’s four-page order on Axis Bank will send a strong signal to the market when it comes to handling of price-sensitive information.
 
The issue of earnings leak on private WhatsApp groups was first reported in an investigative report by news agency Reuters. The report had named 12 companies whose earnings were circulated in advance. Some of the companies named in the report were Dr Reddy’s, Cipla, HDFC Bank, Tata Steel, Wipro, and Bajaj Finance. The market regulator is said to be examining four more companies apart from Axis Bank.
 

G Mahalingam, whole-time member, Sebi, highlighted in Wednesday’s order that the financial metrics, such as loan write-offs, net performing asset (NPAs), and current account saving amount (CASA) ratio, of Axis Bank closely matched with the actual earnings figures.
 
“It was observed that the figures that were in circulation in WhatsApp groups about Axis Bank were either matching in totality or were close to the actual announcements,” said Mahalingam.
 
Sebi had asked Axis Bank to submit information regarding the process and controls it follows for handling price-sensitive information. The lender told Sebi that it “has ensured adherence to the applicable laws and has adopted adequate process and controls to maintain confidentially”.
 
Explaining the timing of the earnings, Sebi said the actual results of Axis Bank were announced at stock exchanges on July 25 at 16:23 hours, while the messages were in circulation the same day since 9:12 am.
 
“Such resemblance of the information circulated in the WhatsApp groups prima facie indicates that the financial figures of the bank were in circulation prior to official announcement / publication by Axis Bank. The same could not have been possible without leakage of information from the persons who were privy to the information relating to financials prior to its official announcement,” said Mahalingam, who was executive director at the Reserve Bank of India (RBI) prior to joining Sebi.
 
Sebi said it had not yet been able to ascertain the source or origin of the leak, but added it could be prima facie attributable to the inadequacy of the processes, controls and systems at the bank.