The Securities and Exchange Board of India (Sebi) could issue another order in the matter of IndusInd Bank on potential violations of regulations under the Listing Obligations and Disclosure Requirements (LODR), hints the 32-page interim order of the regulator.
Sebi’s analysis of email trails, the excerpts of which were presented in the May 28 order, shows that people in senior management, including the chief financial officer (CFO), knew of these discrepancies in accounting as early as November 2023.
Despite this, the bank failed to promptly disclose those, categorising the information pertaining to derivatives losses as “unpublished price-sensitive information” (UPSI) only on March 4.
The bank made a stock-exchange disclosure on March 10, following which IndusInd’s stock tanked 27 per cent.
Notably, the bank had an external validation done by consultant KPMG in February last year.
It identified a financial impact of over Rs 2,000 crore due to discrepancies in its derivatives portfolio.
However, the bank disclosed this information only in March this year, about 15 months later.
In December 2023, the CFO proposed submitting the details of the discrepancies to the Reserve Bank of India (RBI).
The person shared the calculations of the projected capital to risk asset ratio (CRAR) due to the negative impact of the discrepancies with the then managing director (MD) and chief executive officer (CEO).
Sebi’s order notes that Sumant Kathpalia, then MD and CEO, acknowledged the seriousness of the lapses and requested the calculations be validated.
Legal experts say the regulator’s focus is on the materiality of disclosures and classification of important information as UPSI in such matters as non-disclosure puts investors at risk.
“Sebi has been increasingly emphasising the ‘materiality + timeliness’ test in its disclosure regime.
"So certain fact checks, like the bank’s internal governance protocols and how quickly senior management or the board was informed, form key parts of Sebi’s assessment,” said Hardeep Sachdeva, senior partner, AZB & Partners.
Sachdeva added that while the level and attribution of knowledge of discrepancies would have to be ascertained, if the discrepancies were known in 2023, then the bank was obligated to disclose material developments promptly, typically within 24 hours of the occurrence or recognition of a material event.
Regulations under the LODR specify the timelines to be followed in disclosing material information by listed companies.
If the event or information originates within the listed entity, it must be disclosed within 12 hours of occurrence.
If it originates externally, it must be disclosed within 24 hours of receipt of information, according to legal experts.
"Any delay must be accompanied by a justification.
"Regulation 51 further mandates that information having a bearing on the performance or operations of the listed entity must be disclosed within 24 hours,” said Prithiviraj Senthil Nathan, partner, King Stubb & Kasiva, Advocates and Attorneys.
Legal experts state Sebi has the authority to impose monetary penalties on IndusInd Bank for its failure to comply with the disclosure requirements.
“According to Section 15A of the Sebi Act, 1992, a person required to furnish a document or disclose a piece of information under the Sebi Act or any rules or regulations made under it within the specified timelines fails to do will be liable to a penalty not less than Rs 1 lakh, which may extend to Rs 1 lakh for each day of continued failure, subject to a maximum of Rs 1 crore,” added Nathan.
In an ex parte interim order, Sebi debarred Kathpalia, former deputy CEO Arun Khurana, and three other senior executives from trading in securities for alleged insider trading.
The regulator has also directed them to disgorge Rs 19.78 crore.
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