Derivative Disaster: IndusInd Bank's Hidden Losses Revealed

IndusInd Bank has been in a crisis situation owing to inconsistencies in its foreign currency derivative transactions. The bank hedged forex exposures internally through internal trades, which were different from external trades in terms of valuation. This resulted in account mismatching, increasing reported profits while concealing trading losses. The problem came to light after RBI guidelines initiated a review, indicating possible losses of about Rs 1,600 crore. The bank has reversed internal trades and moved to external hedging. An external audit is in progress to ascertain the financial implication. The RBI is looking into whether this is a systemic banking problem.

 

Source:  Mint Explainer