SEBI Bans IndusInd Bank Executives in Insider Trading Case After Derivatives Scandal
| 2025-05-29
An illuminated IndusInd Bank signboard is displayed outside a branch in New Delhi, as seen in a Reuters file photo.
India’s market regulator SEBI bars IndusInd Bank’s former CEO and senior executives for insider trading linked to a Rs 2,000-crore derivatives discrepancy.
SEBI Bans IndusInd Bank Executives for Insider Trading After Derivatives Scandal
India’s securities market regulator has barred several former and current senior executives of IndusInd Bank Ltd from participating in the capital markets after uncovering alleged insider trading linked to a significant accounting discrepancy in the bank’s derivatives portfolio.
The Securities and Exchange Board of India (SEBI) issued an interim order against the officials, including former Chief Executive Officer Sumant Kathpalia and former Deputy CEO Amit Khurana. The order follows an investigation that found evidence of these individuals trading in the bank’s shares while in possession of unpublished price-sensitive information (UPSI).
Allegations of Withholding Market-Critical Information
According to SEBI’s findings, senior executives at the Mumbai-based private sector lender, backed by the billionaire Hinduja family, were aware as early as December 2023 of a discrepancy valued at Rs 2,000 crore (approximately US$240 million) within the bank’s derivatives transactions. Despite internal discussions, this information was not disclosed to the public until March 10, 2025.
The delay in disclosure reportedly enabled several insiders to sell their stock holdings ahead of the announcement, shielding themselves from significant financial losses when IndusInd Bank’s share price fell by 27% in a single day following the revelation.
“The acts of omission and commission, as established in the investigation, demonstrate a clear violation of the regulations designed to preserve market integrity,” SEBI’s 32-page interim order stated.
Executives Avoided Losses Worth Hundreds of Crores
The investigation revealed that five senior executives, including Kathpalia and Khurana, sold their holdings between December 2023 and March 2025, prior to the public disclosure of the accounting issue.
Among these transactions, Kathpalia was found to have sold 125,000 shares, avoiding a potential loss of Rs 5.2 crore (US$624,000). Meanwhile, Khurana offloaded over 340,000 shares, sidestepping a loss of Rs 14.3 crore (US$1.71 million).
In total, SEBI reported that insiders evaded potential losses amounting to Rs 1,692 crore through these trades. The regulator has frozen the proceeds of these transactions and ordered the accused to respond to the findings within 21 days.
Market Reaction and Brokerage Downgrades
Following the March disclosure, IndusInd Bank’s share price experienced a sharp decline, hitting a 52-week low of Rs 605.40 on March 12. However, the stock has since staged a partial recovery, gaining over 32% from its low and trading at Rs 809.75 on the Bombay Stock Exchange by late May.
Despite the rebound, brokerage firms remain cautious. ICICI Securities recently downgraded IndusInd Bank from ‘Hold’ to ‘Sell,’ lowering its target price to Rs 650. The firm cited concerns about the bank’s earnings outlook, predicting it would underperform peers with a projected compound annual growth rate (CAGR) of 8% and a return on assets (RoA) of less than 1% for the financial years 2025 to 2027.
Broader Context: Regulatory Focus on Market Transparency
SEBI initiated the probe on its own accord after the stock’s steep plunge in March raised suspicions about potential regulatory breaches. The derivatives-related accounting discrepancy, initially estimated at Rs 1,529 crore, was later revised to Rs 2,000 crore as further irregularities were uncovered.
India’s financial markets regulator has in recent years intensified its scrutiny of insider trading and delayed disclosures, with an aim to strengthen market transparency and protect retail investors.
This latest case underscores ongoing challenges in corporate governance among India’s private sector banks, particularly in managing complex financial instruments such as derivatives.
IndusInd Bank’s Response and Leadership Changes
In the wake of the scandal, several members of IndusInd Bank’s top management team resigned. In his resignation letter, former CEO Sumant Kathpalia stated he was stepping down on moral grounds, acknowledging “various acts of commission and omission” that had come to light.
The bank has yet to release an official statement addressing SEBI’s interim order, though it has previously committed to cooperating with regulatory authorities and reviewing its internal control systems.
Implications for India’s Banking Sector
The case has drawn attention to corporate governance standards in India’s financial sector, where private lenders have been under pressure to bolster risk management practices amid increased regulatory oversight.
While IndusInd Bank’s stock has shown resilience in recent weeks, analysts caution that investor confidence remains fragile. Market watchers suggest that the outcome of SEBI’s final order and the bank’s ability to rebuild trust with stakeholders will be crucial in determining its medium-term prospects.
SEBI’s investigation remains ongoing, with further actions possible depending on the responses received from the accused executives and additional findings.
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