The Securities and Exchange Board of India is likely to launch a preliminary inquiry into IndusInd Bank over understatement of derivative losses and potential unfair trade practices, according to people familiar with the matter.
SEBI is expected to examine discrepancies in the bank's accounting of derivative trades and investigate possible insider trading where certain insiders reportedly sold their holdings following the realisation of non-public information, the people said, asking not to be identified as the discussions are private.
These misreported losses suggest improper accounting practices, which could be in violation of SEBI's disclosure and listing norms and if insider trading is confirmed, it would be a breach of SEBI's Prohibition of Fraudulent and Unfair Trade Practices regulations, a person with direct knowledge of the matter told NDTV Profit.
These issues have raised significant regulatory breaches on the bank's part, they said.
An email sent to SEBI seeking comment on the matter went unanswered.
IndusInd Bank failed to properly account for mark-to-market payments on its derivative positions, leading to an understatement of its actual losses, according to sources.
The discrepancies in the bank's derivatives portfolio were flagged during an internal review, with the bank acknowledging that these issues could reduce its net worth by 2.35%. The problem could potentially impact its profits by around Rs 1,500 crore, as disclosed in the bank's filing on March 10.
Publicly listed companies are mandated to disclose material financial information accurately and promptly. Failure to do so, especially concerning substantial market positions such as derivatives, not only undermines investor trust but also violates market regulations.
In addition to concerns about financial reporting, insider trading at the bank has also drawn attention. SEBI is investigating whether certain insiders used non-public information about the bank's derivative losses to sell their holdings before the full extent of the losses became public. Sources suggest that data could soon be sought from the exchanges to assess the impact of these transactions.
Meanwhile, the Department of Financial Services (DFS), under the Ministry of Finance, has reviewed the situation at IndusInd Bank. The DFS has recognised issues such as accounting discrepancies, governance challenges, and leadership concerns.
The DFS is in talks with the Reserve Bank of India to ensure a comprehensive examination of the matter, with a focus on maintaining stability and integrity within the banking sector.
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