Sebi bars former IndusInd Bank CEO, four others from market for insider trading

The regulator also impounded 19.8 crores notional gains from share sales made during 15-month information gap on derivatives-linked losses.

Neha Joshi
Updated29 May 2025, 09:03 AM IST
IndusInd Bank's former managing director and chief executive officer Sumant Kathpalia.
IndusInd Bank's former managing director and chief executive officer Sumant Kathpalia.

India's capital markets watchdog has cracked down on IndusInd Bank Ltd's (IBL) former managing director and chief executive officer (CEO) Sumant Kathpalia, along with four other senior officials for alleged insider trading, impounding gains of 19.78 crore and restraining them from trading in securities until further notice.

The five executives were issued show-cause notices over allegations of offloading shares while in possession of unpublished price sensitive information (UPSI) related to a massive accounting discrepancy.

Also Read | Sebi reopens insider-trading probe against top IndusInd Bank executives

Apart from Kathpalia, the Securities and Exchange Board of India's (Sebi's) order on Wednesday barred former executive director and deputy CEO Arun Khurana, treasury operations head Sushant Sourav, global markets group (GMG) operations head Rohan Jathanna, and Anil Marco Rao, chief administrative officer of consumer banking operations from the market for alleged insider trading.

The saga allegedly began in 2023 after the Reserve Bank of India (RBI) issued a direction requiring banks to follow new valuation norms based on the Institute of Chartered Accountants of India's (ICAI) revised 2021 guidance. IndusInd Bank constituted an internal team on 26 September 2023 to assess the impact of the new norms.

Also Read | IndusInd suspects fraud, sees steep Q4 loss

According to Sebi’s order, it was during this review that “incorrect accounting treatment of derivative contracts was noticed,” triggering the need to compute potential unreported losses.

The examination of the bank’s internal emails of November 2023 showed that senior management was fully aware of the discrepancies.

The bank informed its executives that the estimated financial impact stood at 1,749.98 crore.

In the 4 December 2023 email, Kathpalia acknowledged the seriousness of the matter, which Sebi identified as the point when the unpublished price sensitive information (UPSI) originated.

Also Read | How IndusInd spotted a 600 crore error in its microfinance book

However, IndusInd classified the information as UPSI only on 4 March 2025 and disclosed it publicly on 10 March 2025—more than 15 months later—via a stock exchange filing.

Given IndusInd’s net worth of 65,101.65 crore as of December 2024, this translated into a hit of around 1,529.88 crore. The impact was immediate: the bank’s stock plummeted 27.16% the next trading day, from 900.60 to 655.95.

Sebi found that the five top executives sold a combined 479,000 shares of IndusInd between December 2023 and March 2025. Notably, none of the executives purchased shares during this period, reinforcing Sebi’s view that these were strategic offloads.

“It would be naive to assume that the five individuals traded in the scrip of IBL while being in possession of UPSI in a routine manner, when discussions were being carried out related to huge impact of discrepancies on financials of IBL and the executives were aware of the same," the order authored by Whole Time Member Kamlesh Varshney said.

Sebi’s investigation also pointed to a systematic failure to recognize and disclose UPSI.

The regulator found that the bank had internally computed and circulated rising estimates of losses from derivative discrepancies— 1,572 crore to 2,361 crore—and proposed or submitted these to the RBI between December 2023 and May 2024.

However, this information was made public only much later, via a stock exchange disclosure on 10 March.

Sebi has claimed that IBL has clearly violated the regulations which prohibit trading while in possession of UPSI and require listed companies to ensure timely disclosure of such information.

The information about IndusInd Bank's derivative discrepancies was not publicly available before 10 March. When it was finally disclosed after market hours, the stock price fell sharply by over 27% the next day, confirming the material impact of the UPSI.

To prevent dissipation of gains, Sebi impounded the notional losses avoided by the five executives amounting to 19.78 crores collectively.

“The trading done by insiders, while being in possession of UPSI caused notional monetary loss to the innocent investors who did not have free and equal access to the crucial/material information owing to it not being disclosed to them as and when it became available to the Company” the order said.

These amounts are directed to be placed in fixed deposits with a lien in Sebi’s favour.

All five individuals are barred from buying or selling any securities until further notice. “It is essential that this order is passed to protect the unlawful gains in the form of prevention of losses, getting escaped from regulatory reach”, the regulator said.

Sebi’s detailed investigation into insider trading by the named individuals—as well as other potential suspects—is ongoing, alongside a parallel probe into disclosure lapses and related violations.

Meanwhile, the five executives can respond within 21 days and seek a personal hearing.

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