SEBI bars Axis Capital as merchant banker, arranger, underwriter in debt market

The Securities and Exchange Board of India (SEBI) has restrained Axis Capital (ACL), a wholly-owned subsidiary of Axis Bank, from taking any new assignment as a merchant banker, arranger, or underwriter in the debt segment for alleged violations of norms, till further order.

"...as an interim measure pending inspection of ACL by SEBI, hereby restrain ACL from taking up new assignments in the capacity of a merchant banker, arranger or underwriter for any issue / offer for sale of securities in the debt segment, till further order," the interim order copy put on Thursday read.

SEBI order noted that ACL provided guarantee/indemnity towards redemption of non-convertible debentures (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," it added. "The CRAs (credit rating agencies) construed such guarantee / indemnity as credit enhancement and rated the instruments accordingly, which the investors relied upon.

A copy of this order will be forwarded to the Reserve Bank of India for examining ACL's activities as a subsidiary of a banking company.

SEBI conducted an inspection of ACL following a report by SEBI Registered Research Analyst, highlighting certain concerns related to a high-risk transaction undertaken by Axis Capital Limited, a SEBI registered Merchant Banker and a wholly owned subsidiary of Axis Bank Limited.

"The foregoing prima facie observations contained in this Order are made on the basis of the material available on record," Ashwani Bhatia, Whole Time Member, SEBI, wrote in the interim order.

Within 21 days from the date of receipt of this interim order, ACL shall file its reply or objections, if any, to this Order and may also indicate whether it desires to avail an opportunity of a personal hearing on a date and time to be fixed in this regard.