IndusInd Bank share price will be in focus on Thursday after capital markets regulator Sebi barred the company’s former CEO Sumant Kathpalia, and four other senior officials from accessing the securities markets in connection with an alleged insider trading in the bank’s shares.
The Securities & Exchange Board of India (SEBI) has also impounded ₹19.78 crore collectively from the five individuals.
The other officials of IndusInd Bank restrained by the regulator for alleged insider trading are former executive director and deputy CEO Arun Khurana, treasury operations head Sushant Sourav, global markets group (GMG) operations head Rohan Jathanna, and Anil Marco Rao, chief administrative officer of consumer banking operations.
“There is no impact on the financial, operation or other activities of IndusInd Bank arising out of the Interim Order,” IndusInd Bank said in a regulatory filing on Wednesday.
Sebi Order
According to the interim order passed by Sebi, it was found that these senior executives allegedly traded in IndusInd Bank shares while in possession of unpublished price-sensitive information (UPSI) related to discrepancies in account balances of the bank’s derivative portfolio. By doing so, they violated insider trading regulations.
The case originated from a Master Direction issued by the Reserve Bank of India (RBI), which had a significant operational and financial impact on IndusInd Bank.
Sebi noted that the internal team of the bank was aware of the financial implications due to discrepancies in the derivative portfolio and had already begun calculating the impact internally.
The bank informed its executives that the estimated financial impact stood at ₹1,749.98 crore.
In its order, Sebi noted that noticee nos. 1 to 5 (five officials) traded in the scrip of IBL while being insider and accordingly barred them “from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever, until further orders.”
On April 29, CEO Kathpalia and Deputy CEO Khurana resigned from the bank. Following their exit, the IndusInd Bank Board appointed a Committee of Executives to oversee daily operations until a new MD & CEO takes charge or for a period of three months, whichever is earlier.
Impact on IndusInd Bank Q4 Results
The fraud-hit private sector lender earlier this month reported a ₹2,329 crore loss for the March quarter, its worst performance ever, as the interim management opted to go for a deep-clean exercise beyond recognising the impact of wrong accounting practices.
In the March quarter, the bank took impact of all the irregularities brought to the notice, including a ₹1,960 crore hit from incorrect recognition of derivative trades, cumulative interest income reversal of ₹674 crore due to incorrect accounting, disclosed a ₹172 crore fraud where employees had led it to incorrectly classify the amount as fee income under the microfinance business, set off ₹595 crore of incorrect manual entries posted as “Other Assets” and “Other Liabilities” in the past, and also recognized the higher slippages.
The internal audit report of the bank revealed “involvement of senior Bank officials, including former Key Management Personnel (KMP), in overriding key internal controls”. The bank reported the likely involvement of senior management in the accounting fraud to the Central Government.
IndusInd Bank share price has fallen 19% in three months and 17% YTD. Over the past one year, IndusInd Bank shares have declined 45%, while the stock is down 13% in three years.
On Wednesday, IndusInd Bank share price ended 1.99% lower at ₹804.75 apiece on the BSE.
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