Madhabi Puri Buch: Allegations mount against India market regulator Sebi amid bull run

Following a wave of allegations against its chief, best fund managers, and the BBC, India’s market regulation is facing a danger to its reliability.

Over the past month, allegations of conflict of interest against Madhabi Puri Buch, the chairperson of the Securities and Exchange Board of India ( Sebi), have been made from at least four different angles. She has denied the majority of them and has not responded to some in public.

This comes amid a bull run in India’s capital markets, which are among the country’s best performing this time.

In a flurry of mutual funds and initial public offerings ( IPO ) frenzy, millions of new mom-and-pop investors have opened electronic accounts to invest in more than$ 6 billion ( £4.5 billion ).

Trouble for Ms Buch began in August when US-based short-seller Hindenburg Research accused her and her husband of holding investments in an offshore fund used by the Adani Group, implying it was why Sebi was dragging its feet on an investigation against Adani over allegations of accounting fraud and market manipulation.

A number of other complaints have since been brought to the forefront.

The main opposition group, the Congress Party, claims that Ms. Buch has rented from a business she was looking into. It has also been claimed that she continued to work for one of India’s largest private lenders, ICICI Bank, by maintaining an “office of profit” through Employee Stock Ownership Plans ( Esops ) long after her time with them was over.

Subhash Chandra Goyal, the chairman emeritus of internet large Zee Entertainment Enterprises, blamed her for the decline of a merger between his business and Sony Enterprises, stating” I am convinced that the Sebi chairman is corrupt” and calling her “vindictive” in a press conference. He is now facing charges of fund diversion, governmental action, and a ban on holding important positions in listed companies.

But perhaps the most harmful of all is Sebi’s growing domestic discord, which has now spread into the pubic area.

On 5 September, angry staff people staged a uncommon rally outside the bank’s office demanding Ms Buch’s departure. Local media reported that around 1, 000 people had previously reportedly complained of a toxic work environment in a text to the banking department. They complained of “immense force” and” shouting, scolding and public shame” becoming a standard in discussions.

Sebi has formally rejected the promises as “misplaced”, adding that” young officers have been misguided, perhaps by physical elements”.

But, protesters on Thursday called for an immediate contraction of this speech.

” This is unprecedented”, says Hemindra Hazari, an independent business analyst. ” Up until yesterday, internal issues were allegations from the outside, then internal issues have become common. Everything is really wrong”.

Ms. Buch has vigorously defended herself, defying any claims made in the Hindenburg situation regarding conflict of interest, while ICICI Bank has denied receiving her earnings or Esops and claimed she only received her pension benefits after leaving the lender. The Sebi main has so far never made a public statement about the criticisms Mr. Chandra has made of her or the protesting workers.

Sebi did n’t respond to the BBC’s request for comment.

An student of India’s top management college, Indian Institute of Management Ahmedabad, Ms Buch is a pioneer in many ways. She became the first key to possess come from a personal business background, becoming the youngest and first female chairman to direct Sebi.

Experts claim that Sebi has been credited with changing the organization by introducing stricter insider trading standards and accounting standards, but claims of a lack of accountability in her own financial affairs raise serious questions about whether or not Sebi adheres to the same standards it expects from public figures.

” The crux of the issue is about disclosure laws governing the senior-most leaders at regulatory systems, given their access to unreleased price-sensitive data. In a paragraph for Moneylife newspaper, Sucheta Dalal, a senior financial journalist, writes that their orders and decisions can have a significant impact on stock prices, raising the bar for strict reporting and compliance standards.

According to Ms. Dalal, the requirements for head of regulators in developed nations are much more stringent, with some discrepancies in the ICICI Bank statement regarding its Esop policy complicating matters more than making them clear. For instance, they are required to “divest from direct holdings in entities that could post conflict of interest.”

Regulators like Sebi typically employ lateral hires and political appointees from the private sector. The finance ministry, the central bank, and other government nominees are all members of a board that oversees SBI.

According to Shriram Subramanian of the proxy advisory firm InGovern Research, the Buch episode is a “learning” not just for Sebi but also for other Indian regulators, such as the insurance watchdog or the Competition Commission, to implement more stringent disclosure standards.

” It will bring more transparency”, Mr Subramanian adds.

Investors seem unconcerned by the recent events of the month at this time.

Global investors already pay a regulatory risk premium when they make investments in India, and they will disregard this, according to a veteran trader.

However, if the controversy escalates, Mr. Hazari predicts that things could turn the tables.

If internal warnings are issued regarding compliance issues, institutional money can flee. He continues,” And then retail investors will start gradually resuming their positions in the market.”

Some claim that Ms Buch is now facing the very real question of leaving her post as a result of mounting pressure both from outside and inside Sebi.

Her position was “untenable” a few weeks ago, but has become increasingly “unsustainable” now, Subhash Garg, a former finance secretary, told journalist Barkha Dutt on Mojo Story, a digital outlet.

Both Ms Buch and the government would prefer a resignation or suspension as proof of guilt.

At least three market experts the BBC spoke with said the most likely outcome of the controversy will be that Ms Buch’s appointment won’t be renewed. Her current three-year tenure as chairperson ends in February 2025.

What’s most amazing to me is how the government has been completely silent. They must intervene right away. The only higher authorities that can formally authorize a credible investigation are the judiciary or the government, according to Mr. Hazari, when serious allegations are made against the regulator’s head.

Others have also demanded that Sebi’s board intervene and address the allegations in front of the media.

Global investors will watch the way the government handles the situation, and how quickly it acts, according to an executive at a foreign fund house who spoke to the BBC on the condition of anonymity.

” This will affect investor sentiment going forward”, he said.