'Another powerful businessman': Hindenburg questions SEBI's secrecy on Kotak Bank in Adani case

U.S.-based short seller Hindenburg questioned the Securities and Exchange Board of India's (SEBI) actions, highlighting that while SEBI attempted to assert jurisdiction over Hindenburg, it failed to name Kotak Bank, which has a direct connection to India. Instead, SEBI referred to the ‘K-India Opportunities Fund’ and used the acronym "KMIL" to mask Kotak's name.

Kotak Mahindra Bank, founded by Uday Kotak, created and managed the offshore fund used by Hindenburg's investor partner to bet against Adani, according to a Hindenburg update on July 2.

“Uday Kotak, founder of the bank, personally led SEBI’s 2017 Committee on Corporate Governance. We suspect SEBI’s lack of mention of Kotak or any other Kotak board member may be meant to protect yet another powerful Indian businessman from the prospect of scrutiny, a role SEBI seems to embrace,” Hindenburg states.

SEBI issued a 46-page show cause notice to Hindenburg on June 27 regarding its Adani report. Hindenburg reiterated that it had disclosed its short position on Adani shares through a deal with an investor partner using a non-Indian, offshore fund structure, it adds.

On January 24, 2023, Hindenburg published a report accusing Adani group companies of stock manipulation and accounting fraud ahead of Adani Enterprises' proposed ₹20,000 crore share sale. The Adani Group dismissed the report as "malicious and baseless".

In a related development, India's Supreme Court ruled in January that the Adani Group would not face additional investigations beyond SEBI's current scrutiny, providing relief to the conglomerate. SEBI has been investigating the Adani Group for alleged tax haven use and stock manipulation.

The verdict indicated no increased regulatory risk for Adani and upheld existing disclosure rules for offshore funds, despite Hindenburg's allegations.

In early May, Kotak Mahindra Bank, a private sector lender, announced an 18.22% year-on-year (YoY) increase in net profit (PAT) for Q4 FY24, reaching ₹4,133.30 crore, and a 38% sequential growth. The bank's net interest income (NII) for Q4 rose by 13% YoY to ₹6,909 crore, while its net interest margin (NIM) increased to 5.28% in Q4 from 5.22% in Q3 FY24.

Operating profit for FY24 rose to ₹19,587 crore, a 32% increase from ₹14,848 crore the previous year. For Q4 FY24, operating profit climbed to ₹5,462 crore, an 18% YoY increase from ₹4,647 crore in Q4 FY23, and a 20% quarter-on-quarter (QoQ) rise from ₹4,566 crore in Q3 FY24.

In April, the Reserve Bank of India had ordered Kotak Mahindra Bank to immediately stop onboarding new customers via its online and mobile banking platforms and to halt the issuance of new credit cards. The banking regulator stated that these actions were necessary due to major issues found during the IT examination of Kotak Mahindra Bank for 2022 and 2023, and the bank's ‘continued failure’ to address these concerns comprehensively and promptly.