Mumbai: The Securities and Exchange Board of India (Sebi) on Friday directed HDFC Bank Ltd to strengthen its existing systems and controls to prevent any leakage of unpublished price-sensitive information so that no entity is able to breach Sebi’s insider trading norms and make illegitimate gains.
Sebi ordered the country’s largest private sector lender to submit a report on its present systems and controls and the details of the entities responsible for monitoring such systems.
The bank has been ordered by the market regulator to conduct an internal inquiry into the leakage of unpublished price-sensitive information relating to its financial figures, including non-performing assets (NPAs), and take appropriate action against those responsible for the same.
Sebi has also ordered HDFC Bank to find out the possible role of certain persons in relation to the recent leakage of unpublished price-sensitive information (UPSI) with regards to the bank’s 2017-2018 June quarter results.
When contacted, an HDFC bank spokesperson said: “We have so far not read the order but it goes without saying that we will comply with the order as we are a very compliance- and regulations-driven organization."
This is the second order from Sebi with regard to cases relating to leakage of sensitive company-related information through private digital messaging applications such as WhatsApp, ahead of the official announcement on stock exchanges by the concerned company.
On 28 December, Sebi had passed a similar order against Axis Bank Ltd, another privately held lender. Axis Bank was asked by Sebi to conduct an internal inquiry into the suspected leak of its June quarter financial results.
Sebi, in its order against HDFC Bank, said that it had initiated a probe into the lender after certain newspaper articles referred to circulation of UPSI in various private WhatsApp groups about certain companies ahead of their official announcements to stock exchanges.
During the course of preliminary examination, Sebi observed that the messages circulated on WhatsApp closely matched the HDFC Bank results for the April-June quarter, which were published subsequently.
The actual results of HDFC Bank were announced on 24 July 2017 at 12.12 pm.
However, as per the Sebi probe, some WhatsApp messages mentioning certain key numbers from HDFC Bank’s Q1FY18 results started circulating from 21 July 2017.
The probe found that a WhatsApp post stated HDFC Bank’s gross NPA figure at 1.25% on 21 July, while the actual results showed this figure as 1.24% on 24 July. Similarly, a WhatsApp post ahead of the official announcement of the results stated the bank’s net profit at Rs3,900 crore while the actual net profit as per the official announcement stood at Rs3,893.84 crore.
Sebi found that a similar incident took place during the time of announcement of the bank’s December 2015 quarterly results as well.
Sebi found that a WhatsApp post at 0951 hours on 25 January 2016 stated HDFC Bank’s net interest income (NII) for the quarter ended December 2015 at Rs.7,050 crore while the official announcement at 1407 hours on the same day showed this number at Rs7,068 crore.
Similarly, on the same day, the bank’s net profit for the quarter was stated at Rs3,350 crore by a WhatsApp post while the actual profit declared later stood at Rs3,350 crore.
Sebi found that the financial results of HDFC Bank for quarter-ended 30 June 2017 were finalized on or before 19 July 2017, which was right before the beginning of circulation of the WhatsApp message on 21 July 2017.
However, Sebi could not ascertain the source of the WhatsApp earnings leak.
“Such leakage is prima facie attributable to the inadequacy of the processes /controls/ systems that HDFC Bank as a listed company had put in place," read the Sebi order.
HDFC Bank, in its reply to Sebi said that the concerned officials had shared the information on unpublished Gross NPA, NPA and profit figures with the concerned employees of the bank and with the statutory auditors, for official purposes and on a need to know basis.
Sebi, in its order, has asked the bank to find out the role of the members of its various committees involved in generation of the original data for the purpose of determination of key figures pertaining to financial figures. The bank is also required to probe the persons involved in the preparation of HDFC Bank’s board notes and presentations.
“The inquiry directed above shall be completed within a period of three months from the date of this order, and within seven days from the completion thereof, HDFC Bank shall file a report to Sebi in that regard," said the Sebi order.
Jayshree P. Upadhyay contributed to this story.