The Securities and Exchange Board of India (SEBI) has directed HDFC Bank to strengthen its processes and systems so that cases of unpublished price sensitive information (UPSI) being leaked are not repeated. The securities market regulator had issued the same directions to Axis Bank last December.

HDFC Bank has been asked to submit a report on its present systems, processes and controls, the manner in which these would be strengthened besides details of persons manning these systems and the periodicity of monitoring.

The Bank has also been asked to conduct an inquiry to determine the possible role of every person who had access to information which was leaked. This includes persons/members of committees, those consolidating results, people preparing board notes and presentations, besides the persons involved in disseminating the information.

HDFC Bank has been given three months to conduct the inquiry.

According to SEBI’s (Prohibition of Insider Trading) Regulations, 2015, sharing of UPSI pertaining to listed companies, listed securities and to be listed securities is prohibited. The maximum penalty for insider trading is the higher of Rs 25 crore or five times the profits made, as a result of insider trading.

SEBI, in mid-2017,while investigating a dozen entities (of leakage of financial results via Whatsapp groups) found two instances of information being leaked by HDFC Bank to the outside world prior to the results being filed on the stock exchanges.

Two cases of Leakage

The first instance was a leak of the bank’s December quarter results of FY 16 which were leaked at 9:51 hours on 25 January 2016 while the results filing on the exchanges showed a time stamp of 14:07 hours on 25 January 2016. SEBI found that the net interest income and net profit figures circulated closely matched with the actual results.

The more recent case happened during the first quarter results of FY17 when SEBI found that the results were circulating on Whatsapp since 21 July 2017 while the actual results were announced on the stock exchanges at 12:12 hours on 24 July 2017. In this case, the bad loans (gross NPA) and the net profit figures circulated, closely matched with the actual results.

However, SEBI observed that the source of the UPSI leakage could not be ascertained. According to SEBI, the prima facie reasons for the leaks were inadequate systems/processes/controls. The bank, when called upon for information, shared details to SEBI on the officials privy to the information, including auditors, besides the manner in which the information was stored and shared.