Sebi finds ICICI bank outreach to I-sec shareholders inappropriate

India’s markets regulator has issued a warning to ICICI Bank in a letter dated 6 June, on the outreach undertaken by the bank’s executives to encourage ICICI Securities' (I-Sec) shareholders to vote for its delisting from the exchanges in a voting held in March.

In the letter, the Securities and Exchange Board of India (Sebi) has also asked the bank to act against the errant employees who made the outreach, and submit an action taken report to its Board.

In its disclosure to the stock exchanges on Thursday, the bank made the letter issued by Sebi public.

Sebi's observations come on the back of several complaints it received from I-Sec shareholders alleging multiple calls and messages from the bank to vote in favour of the delisting scheme, repeated calls insisting on voting, and seeking screen shots of voting.

Also read: ICICI Securities case: Is shareholder activism maturing in India?

Mint had reported on 7 May that Sebi was looking into the allegations that the bank's employees had reached out to shareholders of I-Sec to try and influence them ahead of a crucial shareholder vote.

An email sent late evening on Thursday to ICICI bank spokesperson remained unanswered till press time.

ICICI Bank Criticized for Influencing Vote

In the letter, the markets regulator wrote, “...based on the examination of the investor complaints, it was observed that some of the officials of your Bank have gone beyond the outreach programme by making repeated calls, asking for screenshots of voting, etc. Further, from one of the call recordings shared, it was observed that the shareholder of I-Sec was informed by your Bank officials that opting for the scheme would be beneficial, which was clearly beyond an outreach programme. As such it appears from the complaints that your Bank officials went beyond the remit of the outreach programme,” said Sebi in its letter.

These observations were made by Sebi on the bank's reply given to a set of queries sent by the markets regulator.

Also read: Why ICICI Bank employees are dialling ICICI Securities shareholders

In its reply, ICICI Bank concurred that I-Sec had shared the data of its shareholders at the bank's request, and that it had reached out to those shareholders of the company, who were either shareholders or customers of the bank.

“Sharing the personal information of shareholders with the parent company or any other group entity is not a healthy practice. There are significant data privacy violations here. It is good that Sebi has taken swift action in this case,” said Shriram Subramanian, managing director of proxy advisory firm InGovern.

Sebi Questions ICICI's Shareholder Tactics

Sebi in its letter noted that such an outreach by the bank, which is a promoter of the company, on the pretext of “providing a balanced factual position that includes the perspective of ICICI Bank” tantamounts to conflict of interest

Further, the regulator observed that it was inappropriate on the part of the bank to seek screenshots from I-sec shareholders. It questioned the bank's explanation that the outreach was done to help those shareholders who were not aware of the e-voting process.

“The entire e-voting process was already explained in detail in the explanatory statement accompanying the notice to the shareholders along with the dedicated helpline numbers of NSDL and CDSL. A dedicated email id to sort out any technical issues was also provided in the aforesaid explanatory statement. As per the aforementioned procedure, the shareholders should have contacted NSDL/CDSL who would, in turn, have provided support relating to the voting process and would have handled queries with regard to any technical issue. Therefore, your Bank officials asking for screenshot from the shareholders was inappropriate.”

Sebi Directive

The markets regulator has directed the bank to examine all the complaints and take appropriate action against those officials who have violated rules. It has even directed the bank to submit Sebi's letter and the action taken before its board in its next meeting, and apprise the regulator within 10 days of the meeting.

On 27 March, minority shareholders voted to delist ICICI Securities and make it a 100% subsidiary of ICICI Bank. However, many retail shareholders, who collectively hold about 6% of the company, disagreed with the valuation at which it was being delisted. Shareholders of ICICI Securities will get 67 shares of ICICI Bank for every 100 shares they own of the brokerage firm.