India's Regulator Probes Insider Trading at IndusInd Bank

The Securities and Exchange Board of India (SEBI) is investigating possible insider trading at IndusInd Bank, following the revelation of significant accounting lapses. The Mumbai-based lender reported discrepancies in its currency derivatives bookings, dating back at least six years, with an estimated impact of about $175 million. This scandal has sent shockwaves through the banking sector, raising serious concerns about corporate governance and financial stability.

The investigation comes after IndusInd Bank disclosed earlier this month that it had discovered accounting discrepancies in the way it booked currency derivatives. The estimated impact of this issue stands at 2.35 per cent of the bank’s net worth, amounting to approximately ₹1,577 crore. Following the revelation, the stock plunged 27 per cent on March 11, wiping out nearly ₹20,000 crore in market capitalisation and prompting its inclusion in the Futures & Options (F&O) ban list.

The Reserve Bank of India (RBI) has stepped in to reassure customers, confirming that IndusInd Bank remains ‘well-capitalised’ and its financial position is ‘satisfactory.’ The RBI also directed the bank’s board to implement necessary remedial measures. However, the damage to investor confidence is already done. The bank's shares have fallen over 27% since it first announced the lapses on March 10.

The investigation has also raised questions about the role of top executives at IndusInd Bank. Between June 2023 and June 2024, CEO Sumant Kathpalia and Deputy CEO Arun Khurana sold nearly all their shares, raising serious concerns. CEO Sumant Kathpalia sold at an average price of Rs 1,437 per share, cashing out Rs 118 crore. Deputy CEO Arun Khurana offloaded at Rs 1,451 per share, totalling Rs 70 crore. These sales were gradual and continuous over one year.

The timing of these sales is suspicious. IndusInd Bank’s Rs 1,600 crore hedging discrepancy—which was only disclosed in March 2024 after RBI’s intervention—had been ongoing for years. If these executives knew about the issue but sold their shares before making it public, this is insider trading. Did they cash out before the stock price fell, leaving retail investors trapped? SEBI must investigate their intent and whether they acted on non-public material information.

The investigation has also raised questions about the role of Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs). Between March 2024 and December 2024, FIIs aggressively dumped their stake, reducing their holding from 40.3 per cent to 24.7 per cent. DIIs, on the other hand, blindly bought these shares, increasing their holding from 28.6 per cent to 42.8 per cent. This raises serious red flags about potential market manipulation.



The resignation of IndusInd Bank’s CFO in January 2025, just days before the Q3 FY25 earnings release, adds to the concerns about the bank's governance and stability. SEBI must investigate whether DIIs failed in their fiduciary responsibility by investing blindly in a bank where both insiders and FIIs were escaping. Was Indian Money Round-Tripped via P-Notes?

The investigation has also raised questions about the role of Participatory Notes (P-Notes) in this transaction. Many so-called foreign investors in Indian markets are actually Indian money round-tripped through tax havens (Mauritius, Cayman Islands) via P-Notes. If Indian money was routed offshore and brought back as “FII” investment, then insiders and FIIs dumped their shares at high prices, while DIIs (using retail investors' money) bought these shares. The true beneficiaries were those who exited before the crisis became public. This would mean a large-scale financial deception where retail investors unknowingly financed the exit of those with inside information.

The investigation has also raised questions about the role of SEBI in this scandal. Did the DIIs track the continuous insider selling for a year? Why did not DIIs raise concerns when FIIs were dumping shares aggressively? Did DIIs ignore the CFO’s sudden resignation and keep buying shares? Was there a round-tripping scheme where Indian money was funneled offshore and brought back as FII investment?

This is not just a bad investment decision—this could be one of the biggest cases of market manipulation. Top executives dumped their shares before revealing the bank’s financial issues—possible insider trading. FIIs massively exited IndusInd Bank, but who were they selling to? DIIs, using retail investors' money, bought these shares aggressively—but why didn’t they question insider selling and governance concerns? Possible round-tripping via P-Notes—a serious regulatory loophole that SEBI must investigate immediately. This smells like a coordinated effort to exit before a financial disaster—and retail investors were left holding the losses.

Retail investors deserve answers. SEBI must investigate insider trading, FII exits, DII’s role, and potential P-Note manipulations. This could be a massive stock market scam—and regulators cannot afford to ignore it. The investigation into insider trading at IndusInd Bank is a wake-up call for the Indian banking sector. It highlights the need for greater transparency and governance to restore investor confidence and ensure financial stability. The scandal also raises questions about the role of regulators in preventing such incidents in the future. SEBI must act swiftly and decisively to address these concerns and restore trust in the Indian financial system.