The DCB Bank counter is being probed by market regulator SEBI for alleged insider trading and front running. Source close to the regulator told BusinessLine that the probe is primarily linked to the period around October 2015 when DCB Bank shares had suffered a severe crash.

During the second quarter results in October 2015, DCB announced an ambitious target for branch expansion to 300 from around 150 in the coming years and even said it would double its employee headcount to over 5,000 from 3,700. But to the surprise of many, the bank proactively issued a warning that such an aggressive expansion plan would affect its ROA (return of assets) and profitability. Soon after the announcement, DCB shares hit the lower circuit of 20 per cent.

From around ₹140 at the start of October, DCB shares had crashed to ₹80 by the end of the month without any meaningful broader market move. The share price had nearly doubled to ₹150 in just a year between September 2014 and June 2015. The bull run in the counter began in September 2013 when DCB was traded at around ₹40.

Against in-house calls

According to the source SEBI was studying details of key shareholders and bank insiders who bought and sold DCB Bank shares in both cash and derivative segments in 2015. An angle that SEBI was looking at apart from bank insiders was how Ambit Corporate Finance, an arm of Mumbai-based Ambit Capital, ignored the bullish sentiment towards DCB Bank displayed by an analyst in one of its own research house and kept paring its holding in the counter.

DCB was part of Ambit’s ‘good and clean’ report and its research analysts were the most publicly bullish ones on DCB Bank. In fact, in 2015, DCB Bank was among the top pick for Ambit Research. But Ambit Corporate Finance, which held a 4.18 per cent stake in DCB Bank in September 2014 cut its holding to 1.93 per cent as on September 2015 ahead of DCB Bank’s crucial result.

Ambit’s role

In September 2014, Ambit’s holding in DCB was worth around ₹100 crore but it kept selling substantial quantity of shares every quarter. Also, Ambit Corporate Finance has played a key role in DCB Bank’s fund-raising and qualified institutional placement even in 2014 and 2015. In its response, Ambit Capital told BusinessLine that within the group there is a Chinese wall between the institutional equities team and those who manage the principal investments book. As a result, the views of the principal investments team could differ with that of the institutional equities team for various reasons. Institutional equities of Ambit was recommending DCB Bank.

“Investment managers exercise their own discretion when to enter/exit a stock. Just because the research team highly recommends a stock does not mean that the investment manager is bound to buy the stock(s). We cannot be expected to comment on the regulator’s actions. But we have not been served any intimation or notice of any such probe. DCB Bank has not been under active coverage of Ambit and we have not published any research report on it with a price recommendation. However, Ambit has published few management visit notes/ result updates,” Ambit Capital said.

DCB Bank said it did not want to comment on the issue. SEBI did not respond to an email.