India’s capital markets regulator has taken action against former IndusInd Bank Ltd (IBL) managing director and chief executive officer Sumant Kathpalia, along with four other senior executives, for alleged insider trading. The Securities and Exchange Board of India (Sebi) has impounded gains amounting to ₹19.78 crore and barred them from trading in securities until further notice.
The five individuals have been served show-cause notices over allegations of offloading shares while in possession of unpublished price-sensitive information (UPSI) relating to a significant accounting discrepancy.
In addition to Kathpalia, Sebi’s order—issued on Wednesday—restrains former executive director and deputy CEO Arun Khurana, head of treasury operations Sushant Sourav, head of global markets group operations Rohan Jathanna, and Anil Marco Rao, chief administrative officer for consumer banking operations, from the securities market due to alleged insider trading.
The matter reportedly began in 2023, when the Reserve Bank of India (RBI) instructed banks to adopt revised valuation norms based on the Institute of Chartered Accountants of India’s (ICAI) 2021 guidance. In response, IndusInd Bank formed an internal team on September 26, 2023 to assess the implications.
According to Sebi’s order, the team’s review revealed “incorrect accounting treatment of derivative contracts,” prompting the need to estimate potential unreported losses. Internal emails from November 2023 showed that the bank’s senior management was fully aware of the discrepancies. Executives were informed that the estimated financial impact stood at ₹1,749.98 crore.
In an email dated December 4, 2023, Kathpalia acknowledged the severity of the issue—this communication was identified by Sebi as the point at which the UPSI originated.
However, IndusInd formally classified the information as UPSI only on March 4, 2025, and disclosed it publicly on 10 March 2025—over 15 months later—through a stock exchange filing.
As of December 2024, IndusInd’s net worth was ₹65,101.65 crore. The accounting discrepancy resulted in an estimated hit of ₹1,529.88 crore. The market responded swiftly: the bank’s share price plummeted by 27.16 percent the following trading day, falling from ₹900.60 to ₹655.95.
Sebi’s investigation found that the five executives had collectively sold 4,79,000 IndusInd shares between December 2023 and March 2025. Notably, none of them purchased any shares during this period—strengthening Sebi’s view that these were deliberate, strategic sales based on inside information.
“It would be naive to assume that the five individuals traded in IBL’s scrip while in possession of UPSI in an ordinary course, especially when discussions were ongoing regarding the significant financial impact of the discrepancies and the executives were fully aware of them,” the order, issued by Kamlesh Varshney, Sebi's wholetime member, stated.
Sebi’s probe also highlighted a systemic failure to recognise and disclose UPSI in a timely manner. The regulator found that internal estimates of derivative-related losses—ranging from ₹1,572 crore to ₹2,361 crore—were circulated within the bank and submitted or proposed to the RBI between December 2023 and May 2024. However, this information was not disclosed to the public until the 10 March 2025 filing.
Sebi noted that the information concerning the derivative discrepancies was not available to the public before the filing. When eventually disclosed after market hours, the share price plunged by over 27 per cent the next day—confirming the material impact of the UPSI.
To prevent the dissipation of unlawful gains, Sebi has impounded the notional losses avoided by the five executives, totalling ₹19.78 crore. These sums are to be placed in fixed deposits with a lien in Sebi’s favour.
“The trading done by insiders while in possession of UPSI caused notional monetary loss to innocent investors, who were deprived of fair and equal access to crucial information that should have been disclosed when it became available to the company,” Sebi’s order stated.
All five individuals are prohibited from buying or selling any securities until further notice. Sebi said the interim measures were necessary to safeguard the unlawful gains in the form of avoided losses and to prevent regulatory evasion.
The investigation into the insider trading activities of the named individuals—as well as potential others—is ongoing, alongside a parallel probe into disclosure failures and related breaches.
Meanwhile, the five executives have been given 21 days to respond to the charges and may request a personal hearing.
(By arrangement with livemint.com)