Directions In the Matter of Axis Bank Limited

1. In the recent past, certain articles have been published in newspapers / print media referring to the circulation of Unpublished Price Sensitive Information (“UPSI”) in various private WhatsApp groups about certain companies ahead of their official announcements to the respective Stock Exchanges.

2. In this backdrop, Securities and Exchange Board of India (“SEBI”) initiated a preliminary examination in the matter of circulation of UPSI through WhatsApp groups. During the course of preliminary examination, it was observed that in respect of company named Axis Bank Limited (“Axis Bank”), the messages circulated in WhatsApp groups almost matched with the quarterly financial results of Axis Bank for June 2017, which were published subsequently. The following was, inter alia, noted in respect of messages relating to Axis Bank:  The message in circulation in WhatsApp Group was with respect to quarterly financial results of Axis Bank for the quarter ended June 30, 2017, prior to the official announcement by Axis Bank. The actual results of Axis Bank were announced at Stock Exchanges on July 25, 2017 at 16:23 hours.  As per media report, the message was in circulation on July 25, 2017 since 9:12 AM.  It was observed that the figures that were in circulation in WhatsApp groups about Axis Bank were either matching in totality or were close to the actual announcements except figures for “slippage” as can be seen in the following table: Particulars Whatsapp Post Actual Results GNPA 5.03% 5.03% NNPA 2.30% 2.30% NIM 3.63% 3.63% Slippage *8,000 cr **3,519 cr Write off 2,300 cr 2,341.93 cr CASA 48.33% 49% * As per WhatsApp message “Slippage will be mostly from outside the watch list” ** As per actual results Slippage was Rs 3,519 cr (majority were from outside watch list)

3. In this context, information was sought from Axis Bank with regard to the aforesaid circulation of its quarterly results for the quarter ended June 2017 in WhatsApp groups prior to its official announcement. Axis Bank was also asked to submit information regarding the processes / controls that it has in place regarding handling of UPSI. In response thereto, Axis Bank submitted that it has ensured adherence to the applicable laws and has adopted adequate processes/ controls to maintain confidentiality of price sensitive information relating to the Bank. It also submitted that access or communication of such information, is made/done on a need to know basis. It also provided particulars of the processes / controls in that regard.

4. Axis Bank also provided the chronology of events relating to preparation and finalization of its financials relating to quarter – June 17. It was submitted that the process for generation of data started from July 1, 2017 and the financial results were formally disclosed on July 25, 2017.

5. It is noted from the information provided by Axis Bank that the work related to preparation of financial results for the quarter ended June 2017 started on July 01, 2017 with generation of first cut data relating to financial results. Thereafter, various rounds of meetings / discussions were conducted among the officials / Auditors of Axis bank in the process of finalization of quarterly results. Thereafter, during July 21-24, 2017, there was finalization of board notes and presentations, press release, earnings presentation and analyst call transcript. Finally, the results were officially declared on July 25, 2017 at 16:23 hours.

6. Thus, it prima facie appears that the financial results of Axis Bank for quarter ended June 2017 were finalized by July 24, 2017, which was before circulation of WhatsApp message on July 25, 2017.

7. It is observed that the financial figures pertaining to the quarterly results of Axis Bank were either identical or matched closely with the figures (except for slippage figure) that were in circulation prior to its official announcement by Axis Bank. Such resemblance of the information circulated in the WhatsApp groups with the actual financial results prima facie indicates that the financial figures of Axis Bank, were in circulation prior to official announcement / publication by Axis Bank. The same could not have been possible without leakage of information from the persons, who were privy to the information relating to financials prior to its official announcement.

8. In this context, it is noted that leakage of unpublished quarterly financial results (covered under the definition of UPSI under regulation 2(n) of PIT Regulations) which eventually led to circulation of messages through WhatsApp is prohibited and is in contravention of regulation 3(1) and (2) of SEBI (Prohibition of Insider Trading) Regulations 2015 (“PIT Regulations”) read with section 12A(e) of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) which prohibit procurement or communication of UPSI. The said provisions read as under:

Regulations 3(1) and (2) of PIT Regulations: 3. (1) No insider shall communicate, provide, or allow access to any unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, to any person including other insiders except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations. (2) No person shall procure from or cause the communication by any insider of unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, except in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.

Section 12A(e) of the SEBI Act

12A. No person shall directly or indirectly— … (e) deal in securities while in possession of material or non-public information or communicate such material or non-public information to any other person, in a manner which is in contravention of the provisions of this Act or the rules or the regulations made thereunder;

9. It is observed that at this stage, the source / origin of the leakage of UPSI cannot be ascertained. However, it can prima facie be inferred on the basis of the afore-discussed facts and circumstances that the UPSI relating to financials of Axis Bank was leaked. Such leakage is prima facie attributable to the inadequacy of the processes / controls / systems that Axis bank as a listed company had put in place. While procurement or communication of UPSI by any person is identified as a violation of regulation 3 of PIT Regulations and section 12A(e) of the SEBI Act, it becomes incumbent upon every listed company to put in place processes/ controls / systems that would ensure that such procurement or communication of UPSI does not take place.

10. In view of the foregoing, I, in exercise of powers conferred upon me under sections 11 and 11B of the SEBI Act read with section 19 thereof, in the interest of securities market, hereby direct as under: i) Axis Bank shall strengthen its processes/systems/controls forthwith to ensure that such instances of leakage of unpublished price sensitive information do not recur in future; ii) Axis Bank shall conduct an internal inquiry into the leakage of unpublished price sensitive information relating to its financial results and take appropriate action against those responsible for the same, in accordance with law. The scope of such inquiry shall include and not be limited to determination of the possible role of following persons in relation to the aforesaid leakage of UPSI: a) Persons / members of committees involved in generation of the original data for the purpose of determination of key figures pertaining to financial figures including GNPA, NNPA, NIM, Slippage, Write-off, CASA, etc. b) Persons involved in the consolidation of the figures for the financial results. c) Persons involved in the preparation of board notes and presentations. d) Persons involved in dissemination of information relating to financial results in the public domain. e) Any other persons who had access to the information. iii) The inquiry directed above shall be completed within a period of 3 months from the date of this order, and within 7 days from the completion thereof, Axis Bank shall file a report to SEBI in that regard.

Sd/- DATE: December 27th, 2017 G. MAHALINGAM PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA