SEBI Restricts Axis Capital from New Debt Assignments
The Securities and Exchange Board of India (SEBI) has placed restrictions on Axis Capital (ACL), a subsidiary of Axis Bank, prohibiting them from taking on new assignments as a merchant banker, arranger, or underwriter in the debt segment. This interim measure, effective until further notice, is a result of alleged violations of regulatory norms.
The SEBI order states that ACL provided guarantees and indemnities for the redemption of non-convertible debentures (NCDs) under the guise of underwriting, which is not permitted under current regulations. This activity, according to SEBI, poses risks to the financial system and can disrupt market stability.
Credit rating agencies (CRAs) interpreted these guarantees and indemnities as credit enhancements, leading to higher ratings for the instruments. Investors, in turn, relied on these ratings when making investment decisions.
A copy of the order will be forwarded to the Reserve Bank of India for further examination of ACL's activities as a subsidiary of a banking company.
The SEBI order is based on an inspection triggered by a report from a SEBI-registered research analyst highlighting concerns about a high-risk transaction undertaken by ACL.
ACL has been granted 21 days to file a response or objections to the order. They may also request a personal hearing on the matter.