Standard Chartered, one of India’s oldest foreign banks, is under regulatory scrutiny after the Reserve Bank of India (RBI) flagged lapses in its derivative product sales and raised questions over its internal risk governance. The investigation has spotlighted concerns over transparency in selling complex instruments to small businesses and the bank’s accounting practices.
Standard Chartered Plc, a banking institution with a legacy of over 165 years in India, has come under the regulatory microscope as the Reserve Bank of India (RBI) probes a series of compliance lapses in its derivatives sales and internal risk governance mechanisms, according to sources close to the matter.
The ongoing RBI review, which forms part of its annual supervisory inspections, has reportedly identified concerns regarding the bank’s sale of target redemption forwards (TRFs), structured derivative contracts that can expose buyers to substantial losses, particularly if market conditions move unfavorably. According to people familiar with the review, the sales of TRFs to small and medium-sized enterprises (SMEs) were executed without sufficient disclosure of associated risks.
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A Complex Product, A Vulnerable Buyer
Target redemption forwards, although legal and useful in currency hedging for exporters and importers, have come under global regulatory glare in the past due to their complexity. In India, where financial literacy among SMEs remains uneven, the sale of such instruments without thorough risk disclosure is viewed by the RBI as a potentially exploitative practice.
Standard Chartered’s sales team is alleged to have marketed these products aggressively without ensuring the buyers fully understood the loss scenarios involved. The issue bears a resemblance to earlier mis-selling scandals involving complex derivatives in Asia, which triggered legal action and tighter regulatory controls.
While no formal enforcement action has yet been taken by the RBI, the central bank’s review remains ongoing and is focused on governance frameworks, audit trails, product suitability assessments, and internal approval procedures.
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Wider Risk and Accounting Issues
Beyond derivative sales, the RBI has also raised red flags on other issues, notably the bank’s reserve maintenance practices and the accounting treatment of forward rate agreement (FRA) trades in prior financial years. While no public censure has been issued, these are critical components of regulatory compliance and financial stability, especially in the wake of recent global banking crises. The RBI, consistent with its policy of confidentiality in supervisory reviews, declined to comment.
Standard Chartered operates 100 branches across 42 Indian cities, with its core strengths in corporate banking, investment advisory, and wealth management. As one of India’s most visible foreign banks, its reputation for integrity and risk management has been a cornerstone of its brand.
The current probe underscores the fragility of trust in the financial system when even long-established institutions are found potentially lacking in regulatory diligence. Experts suggest the episode could lead to broader introspection among banks about the ethical dimensions of selling complex financial products to less sophisticated clients.
As the RBI continues its review, industry observers will be watching for whether this triggers a policy response, such as a clampdown on high-risk product sales to SMEs or enhanced disclosures in derivative transactions.
About the author – Prakriti Jha is a student at National Forensic Sciences University, Gandhinagar, currently pursuing B.Sc. LL.B (Hons.) with a keen interest in the intersection of law and data science. She is passionate about exploring how legal frameworks adapt to the evolving challenges of technology and justice.