Why SEBI Is Reinvestigating Ex-IndusInd Executives After Giving Them a Clean Chit

Two former executives of crisis-hit IndusInd Bank are once again under the radar of market regulator Securities and Exchange Board of India (SEBI) after fresh revelations emerged. The bank’s former CEO, Sumant Kathpalia, and his deputy, Arun Khurana, have been under scrutiny since resigning in April.

According to a Mint report, SEBI had initially investigated the two executives and cleared them earlier this month. However, media reports about their trading of IndusInd shares led to the reopening of the probe.

This followed a forensic audit by Grant Thornton, which allegedly found that Kathpalia and Khurana traded shares using price-sensitive information about major accounting irregularities—before the issues became public.

The audit was commissioned by the bank’s board at the direction of the Reserve Bank of India (RBI), following discrepancies in the accounting of internal derivatives trades discovered late last year. Grant Thornton submitted the report to the board on April 26, but SEBI has not yet received a copy, Mint said in its report.

“SEBI has asked for the forensic report to examine the findings,” the newspaper quoted a source as saying. The investigation was reportedly reopened after media reports suggested that the executives were aware of the accounting issues.

How Insider Trading Allegations Became Public

In March, IndusInd Bank disclosed improper accounting in its forex derivatives, resulting in a Rs 1,960 crore shortfall and a sharp fall in its stock. This triggered audits by PwC and Grant Thornton.

By April, CEO Sumant Kathpalia and deputy CEO Arun Khurana had stepped down. Earlier this month, Mint reported that SEBI had closed its insider trading probe after concluding the two had made proper disclosures before trading.

However, a May 8 Reuters report citing the Grant Thornton audit claimed the executives traded IndusInd shares despite being aware of the accounting lapses.

Suspected Fraud and SEBI Probe

Earlier this week, IndusInd Bank Chairman Sunil Mehta told analysts the board suspects fraud by key staff in its accounting and reporting teams, which led to the financial irregularities. He said the board had not been informed of these lapses—even when financial results were being approved.

On Thursday, SEBI Chairman Tuhin Kanta Pandey confirmed that both RBI and SEBI are investigating the issues at IndusInd Bank as per their respective mandates.

Reports also suggest that SEBI may examine whether the board was aware of the findings flagged in the forensic report and whether it failed to disclose share dealings by top executives.