In relation to alleged insider trading in the bank's shares, markets regulator Sebi on Wednesday prohibited Sumant Kathpalia, the former CEO of IndusInd Bank, and four other senior officials from entering the securities markets. In addition to the market ban, the regulator's interim order states that Sebi has seized a total of Rs 19.78 crore from the five individuals.

The other IndusInd Bank Ltd. (IBL) officials that Sebi has placed under rest are Anil Marco Rao, Chief Administrative Officer (CAO), Consumer Banking Operations; Sushant Sourav, Head of Treasury Operations; Rohan Jathanna, Head of GMG Operations; and Arun Khurana, Executive Director and Deputy CEO at the time of the alleged violation.

While in possession of unpublished price-sensitive information (UPSI) pertaining to disparities in the account balances of the bank's derivative portfolio, these senior executives allegedly engaged in trading in IndusInd Bank shares. They broke the rules against insider trading by doing this.

"During the preliminary examination conducted by Sebi, on the basis of the evidence collected so far, it is prima facie seen that all noticees traded in the scrip being aware of the UPSI related to the discrepancies and averted/avoided huge losses," the regulator said in its 32-page order.

The case started with a Reserve Bank of India (RBI) Master Direction that had a big effect on IndusInd Bank's operations and finances.

Sebi observed that the bank's internal team had already started calculating the impact internally and was aware of the financial ramifications resulting from differences in the derivative portfolio.

According to a preliminary investigation, the bank's Head of Accounts sent some employees an email on November 30, 2023. According to this communication, the estimated impact of discrepancies in the derivative portfolio was Rs 1,749.98 crore.

Additionally, it appears from the preliminary examination that noticees (five officials) and other senior management of IBL were aware of the UPSI regarding discrepancies and had maintained continuous oversight of it.

According to Sebi, the preliminary examination's analysis of the evidence showed that Noticees engaged in insider trading in IBL stock.

Emails dated December 6, 7, and 8, 2023, mentioned a discrepancy of approximately Rs 1,362 crore, according to Sebi. On December 11, 2023, some employees were informed of the final figure of Rs 1,572 crore.

The analysis also showed that numbers pertaining to the disparities were being prepared for submission to the RBI in addition to being monitored internally.

The disparity figures for the quarters ending in September 2023, December 2023, and March 2024 were Rs 1,572 crore, Rs 1,776.49 crore, and Rs 2,361.69 crore, respectively, according to emails that were distributed on December 16, 2023, March 6, 2024, and May 5, 2024.

Sebi pointed out that this information was only made public through stock exchange filings on March 10, 2025.

It was also apparent that senior management insisted on external verification of these figures. Accordingly, KPMG was appointed in January 2024 to review the discrepancies identified by the internal team. Preliminary examination showed that KPMG had submitted figures of Rs. 2,093 crore as negative impact from discrepancies covering data as on December 31, 2023.

Sebi traded IBL scrips in its notification Nos. 1 to 5 (five officers) and accordingly they are "prohibited from purchasing, selling or trading securities directly or indirectly till further orders".

On April 29, CEO Kathpalia and Deputy CEO Khurana resigned from the bank. After their departure, the Board of IndusInd Bank will appoint an Executive Committee to look after the day-to-day operations until the new MD & CEO takes charge or for three months, whichever is earlier.

Earlier this month, the fraud-hit private sector lender reported a loss of Rs 2,329 crore in the March quarter, its worst performance so far, with interim management choosing not to acknowledge the impact of faulty accounting practices and do a deep clean exercise.

In the March quarter, the bank implemented all the irregularities that came to their notice, including a loss of Rs 1,000 crore due to misclassification of derivative trades. 1960 crore cumulative interest income reversed. 674 crore due to miscalculation, fraud of Rs. 172 crore. Employees misclassified it as fee income under the microfinance business. The amounts were previously posted as “other assets” and “other liabilities”. This stopped the erroneous entry of Rs. 595 crore as well as further delays have been identified.

The bank’s internal audit report revealed the “involvement of senior bank officials, including former key management personnel (KMPs), in circumventing key internal controls”. The bank has told the central government that senior management may be involved in the fraud.

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(With Inputs from PTI)