Indusind bank - Corporate Governance
What the hell happened to Indusind Bank?
10th March, 18:50 hrs - Regulation 30 disclosure
Why do I think that Sumant Kathpalia and Arun Khurana selling a large chunk of their holding in the last 18 months is not necessarily an indication of poor corporate governance?
During the entire term of Sumant Kathpalia as the MD&CEO of the Indusind bank since 24th March 2020, the total fixed pay per annum has been fixed at Rs 7.5 Cr (variable pay is separate - which includes both the cash component and ESOP component)
Though I could not find (maybe I need to dig more) the source of Sumant’s shareholding of 5,28,818 shares in Mar20, most likely it was options granted before he became the MD&CEO under the ESOS 2007 scheme.
Sumant Kathpalia has been with the bank since 2008
What this means is that by March 2021 when Covid’s first wave was behind us, Sumant Kathpalia’s shareholding was worth around Rs 59 Cr in the bank which is multiple times (6X) his annual salary.
It is natural for a professional banker (non-promoter) to sell his shares especially those earned out of ESOPs - it is like “locking the gains”. In my opinion, the way professional management thinks is that I am either way fully invested in my company by way of employment - why should I take higher risk by holding on to the ESOPs for too long? Why not sell and lock in the gains?
What is especially noteworthy is that Sumant Kathpalia sold most of his holding in Indusind bank between March 2023 and March 2024
Though this is definitely suspicious given the fact that he must have been aware or at least could see before others outside the bank - the trouble in microfinance and the derivatives goof-up, there is also one alternative explanation. I am not committing myself to any of the several possible explanations - just pointing them out here
Most of the ESOP shares seem to have been exercised for a price around Rs 600
The banking sector and Indusind bank has been facing several challenges over the years - demonetisation, IL&FS crisis, Covid 1st wave in Mar20, Covid 2nd wave in May 2021 etc.
Finally after so many years, the stock price went above Rs 1200 in Apr23.
Maybe the CEO thought - let me book my profits from the ESOP shares at about 2X my cost. I will make multiple times my annual salary.
The reason this is also a likely explanation is that IndusInd bank has been liberal in granting ESOPs to its employees.
Total outstanding shares of Indusind bank = 78 Cr
Nearly 5.5 Cr shares have been granted to the employees since 2008
This is a significant quantity of ESOPs granted to employees. At today’s market price of around Rs 672, this is worth Rs 3,662 Cr. This is enormous wealth for salaried professionals.
If we observe the insider trading data of Indusind bank on screener.in - several employees have been selling shares over the past several years with remarkable consistency.
Just look at the insider selling in the Apr24 to Jun24 quarter. So many bank insiders have sold their shares.
The funny part is that the insider selling seems to have stopped since Jul24.
The stock price of Indusind bank started tanking sometime around early Oct24.
Investor behaviour is the same - no one wants to sell his shares at a notional loss. The exercise price of the ESOPs must have been around Rs 1250 (guess based on FY24 exercise price). Once the stock price fell below that level - insider selling stopped.
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