Axis Bank clarified on Friday after capital markets regulator SEBI issued an interim order against its wholly owned subsidiary Axis Capital Ltd (ACL), saying its unit complied with all regulatory provisions.
The capital markets regulator on September 19, 2024, in its order pertaining to the non-convertible debentures issued by Sojo Infotel Private Ltd, restrained ACL from taking up new assignments as a merchant banker, arranger or underwriter for any issue or an offer for sale of securities in the debt segment until further orders, with immediate effect.
Axis Capital may, within 21 days from the date of receipt of the order, file its reply or objections. It can also avail of a personal hearing.
"ACL is of the view that its merchant banker, arranger and underwriter-related activities for any issue/offer for sale of securities in the debt segment were bona-fide and in compliance with all applicable regulatory provisions; and further no loss has been caused to any investor or market participant from such activities as on date," says an Axis Bank statement to the exchanges.
It clarified that SEBI has not imposed any other restrictions on ACL. It will "continue to operate all other business activities, including in the equity capital markets, M&A, private equity, and institutional equities domain".
Axis says ACL has already discontinued and has not taken any new assignments as a merchant banker, arranger, or underwriter for any issue or OFS in the debt segment in over a year. It says that "there is no material impact on ACL on account of the interim order". The company is now evaluating all available legal options.
SEBI has not passed any adverse direction or order against Axis Bank Limited. "Axis Bank is of the view that there is no material impact on the Bank on account of the Interim Order against ACL since ACL’s profit after tax (PAT) for FY 23-24 was ~0.70% of Axis Bank’s consolidated PAT. Further, the income from the debt business of ACL for FY 23-24 was approx. 5% of the total income of ACL."
The SEBI order said its probe started after a report "Is Axis Capital an Investment Bank or a Hedge Fund?” in January by a SEBI-registered research analyst, who flagged certain concerns related to high-risk transactions undertaken by Axis Capital.
During the inspection, it was probed whether the transaction undertaken by ACL concerning the listed NCDs of Sojo Infotel was as per the rules or not. "ACL provided guarantee/indemnity towards redemption of NCDs in the guise of underwriting, which it was not permitted to do under the existing regulatory framework. Such activity poses risk to the financial system as it can potentially disrupt the orderly functioning of the market," the SEBI order says.
The role played by ACL in the transaction of Soja was not part of issue management but of the security enforcement mechanism, which essentially fell in the domain of the debenture trustee (Axis DT, which was ACL’s sister company). "While ACL had to bear the cost of its transgressions in the form of fulfilling its indemnity obligations by making payments for the redemption of NCDs, ACL should not have ventured into the banking space in the first place, that risked its credit profile," the regulator said.
The Axis Bank stock is trading 0.42% down at ₹1,237.30 on the BSE today.
