Madhabi Buch exercised ICICI Bank stock options to get shares worth Rs 10.3 crore after joining SEBI

Securities and Exchange Board of India chairperson Madhabi Puri Buch acquired ICICI Bank shares worth Rs 10.3 crore between 2020 and 2022 by exercising employee stock options granted to her by her former employer in 2008, the bank’s regulatory filings with the Registrar of Companies show.

Employee stock options, or ESOPs, are equity compensation that companies grant to their employees, allowing them to acquire shares in the company at a later date and below the market price.

Buch was a whole-time director at ICICI Bank in 2008 when she was granted these ESOPs. She left the bank in 2013 and was appointed as a whole-time member of India’s market regulator SEBI in 2017.

Buch exercised the ESOPs three times between 2020 and 2021, while serving as a SEBI member, and once in 2022, after she took over as its chairperson. She paid Rs 2.86 crore to ICICI Bank to exercise 171,875 ESOPs, in return acquiring bank shares worth Rs 10.3 crore.

This, experts say, raises concerns about possible conflicts of interest since as a publicly listed company on Indian stock exchanges, the ICICI Bank is an entity that SEBI is tasked with regulating.

SEBI’s 2008 code on the conflicts of interest does not bar members from holding or acquiring stakes in regulated entities as long as regular disclosures are made. But members are expected not to deal in securities “based on unpublished price sensitive information” that they have got access to.

Global regulatory standards are stricter. For instance, in the United States, employees of the market regulator, the Securities and Exchange Commission, are prohibited from “knowingly purchasing or holding a security or other financial interest in an entity directly regulated” by the commission.

Scroll emailed Buch about the questions surrounding her exercise of ICICI Bank stock options. This article will be updated if there is a response.

The concerns about Buch perhaps profiting from ICICI Bank while at SEBI first surfaced when the Congress party alleged on September 2 that she had received Rs 16.8 crore in income, ESOPs and tax benefits from the private bank during her tenure at the market regulator. The party did not disclose the source of this information.

According to the Opposition party, of the Rs 16.8 crore, “income from ESOP exercise” accounted for Rs 2.84 crore – presumably proceeds from the sale of bank shares that Buch acquired by exercising her stock options.

Buch has not responded to the Congress party’s allegations. Earlier, Mint reported that Buch has recused herself from ICICI Bank-related matters at SEBI.

Hours after the Congress made the allegations, ICICI Bank made a stock market disclosure stating that it had not “paid any salary or granted any ESOPs to Ms. Madhabi Puri Buch after her retirement, other than her retiral benefits”.

It added: “All the payments made to Ms. Buch post her retirement had accrued to her during her employment phase with the ICICI Group. These payments comprise ESOPs and retiral benefits.”

Bank policy

At a press conference held the next day, Congress spokesperson Pawan Khera questioned ICICI Bank’s statement.

Khera pointed out that ICICI Bank’s ESOP policy states that if an employee voluntarily terminates their job with the bank, all ESOPs must be exercised “within a period of three months from the date of termination, which period shall be deemed to be the Exercise Period”.

However, this seems to apply only to cases of voluntary termination – Buch, according to a person privy to her tenure at the bank, sought early retirement in 2013.

For other employees, the bank’s policy defines “exercise period” as one that could stretch up to “ten years from the date of vesting of options” – that is, after the waiting period for exercising the options is over – as decided by the bank’s remuneration and nomination committee “for each grant”.

In its September 2 statement, ICICI Bank reiterated this, noting that at the time when ESOPs were granted to Buch, “employees including retired employees had the choice to exercise their ESOPs anytime up to a period of 10 years from the date of vesting”.

ESOPs granted to ICICI employees in 2008 – Buch being one of them – vested gradually over four years, according to the bank’s 2009 filing with the Securities and Exchange Commission.

At other private banks, the exercise period is much shorter. At the HDFC Bank, for instance, employees have to exercise their ESOPs within six months of their resignation or retirement. For current employees, the exercise period is only two years after the ESOPs have been vested.

Exercising ESOPs

In the press conference on September 3, the Congress asked whether other ICICI Bank employees had also been allowed to exercise their ESOPs a decade after they left the bank, implying that an exception was made for Buch because of the positions she held in SEBI.

The regulatory filings by the ICICI Bank show that dozens of others had redeemed their stock options in the same period as Buch. However, only 10 other employees had redeemed ESOPs granted in April 2008 or before.

Out of these ten, eight are still employed with the bank, according to their LinkedIn profiles and other online records. One person quit in 2015, while the current employment status of another person remains unclear.

As per ICICI Bank’s ESOP policy, the bank’s remuneration and nomination committee decides the exercise period “for each grant”.

In 2020 and 2021, when Buch exercised 1,19,625 tranches of ESOPs, ICICI bank’s remuneration and nomination committee was headed by Neelam Dhawan, who had earlier led technology firms like Microsoft and Hewlett Packard.

The other members were Rama Bijapurkar, an independent business advisor, B Sriram, who spent more than three decades in the State Bank of India, and Girish Chandra Chaturvedi, then the non-executive chairperson of the National Stock Exchange, according to the bank’s 2020-’21 annual report.

In 2021-’22 and 2022-’23, Bijapurkar left the committee, and the rest remained, according to the bank’s annual reports.

Scroll contacted former and current members of ICICI Bank’s remuneration and nomination committee, seeking more clarity on the decisions related to Buch’s exercise of stock options. Only one member responded. Girish Chandra Chaturvedi said his tenure with the bank as its non-executive chairman had ended on June 30, 2024 ,and asked us to contact the current management.