Under the scanner! RBI probes Standard Chartered on lapses in derivative sales to SMEs

Standard Chartered Plc is facing regulatory scrutiny in India after lapses were spotted in the sale of derivatives and problems were identified in the bank’s risk controls, according to people familiar with the matter.

The Reserve Bank of India raised concerns about processes at the London-based lender following sales to small and medium-sized enterprises of target redemption forwards, a product that can cause significant losses, the people said. Buyers of those contracts were not adequately informed about the risks involved, they said, asking not to be identified discussing private information.

The RBI’s review of Standard Chartered is ongoing, with focus on derivative products and risk governance, according to the people. There is no indication of any formal enforcement actions at this time, they said.

Accounting Lapses In Focus

The banking regulator has also flagged issues relating to Standard Chartered’s maintenance of reserves and the accounting treatment of forward rate agreement trades in previous financial years, the people said.

“The RBI conducts annual inspection of banks,” a Mumbai-based spokesman for Standard Chartered said in an emailed statement. “While we don’t want to comment on specifics, observations, if any, are highlighted and addressed as part of normal process.”

It’s part of the RBI’s routine examination of all banks in India to ensure compliance and soundness of the financial system. While inspection reports are not made public, it’s not too uncommon for the RBI to issue directives or actions on their findings.

The RBI didn’t respond to requests for comment.

Standard Chartered has been operating in India for more than 165 years, making it one of the oldest foreign banks in the country, according to its website. It operates a network of 100 branches across 42 cities with its primary business segments in the country being corporate and investment banking, as well as wealth and retail banking.