Market regulator SEBI has barred Axis Capital (ACL) from working as an investment banker in the debt market. SEBI has said that this order will remain in force on Axis Capital till further orders. Under this, SEBI has forbidden Axis Capital from doing any new work as a merchant banker, arranger, or underwriter for any issue of securities in the debt segment. In an interim order issued on September 19, SEBI has also asked ACL to respond to the comments made in the order within 21 days.

This is the case against Axis Capital

SEBI investigated the allegation that ACL acted beyond the activities permitted to be a merchant banker in the issuance of listed non-convertible debentures (NCDs) of Sojo Infotel. According to the interim order, "ACL provided guarantees/indemnities for the redemption of NCDs under the guise of underwriting, which was not permitted under the existing regulatory framework. Such activity poses a risk to the financial system as it may disrupt the orderly functioning of the market."

While underwriting an issue, the merchant banker is allowed to take market risk. That is, he is allowed to subscribe or obtain subscriptions for the securities offered for sale or issued.

The order said, "Very clearly the purpose of the regulation is to allow a merchant banker to take market risk by subscribing to the unsubscribed portion of securities offered to investors and to dispose of the securities so acquired by charging a fee." However, according to the order, ACL through its arrangement with Sojo was taking credit risk by providing credit-risk cover to NCD subscribers.