Banking System Under Threat
The Reserve Bank of India’s Deputy Governor, Swaminathan J, has expressed concerns about the banking system in India. He believes that some banks and non-banking finance companies are adopting unethical practices due to intense competitive pressures and a desire to project short-term success.
Unethical Practices on the Rise
Some lenders are resorting to practices such as creative accounting and liberal interpretations of regulations. Inadequate internal controls are being "normalised" in some boardrooms, which can lead to supervisory interventions. This is a major concern as it can erode the public’s trust in the integrity of the banking system.
Importance of Ethics in Banking
Swaminathan emphasized the importance of pursuing growth with systems, people, and processes that are aligned and rooted in ethical practices. He believes that bank boards and managements have a responsibility to deepen the hard-earned trust through responsive service, reliable systems, and responsible leadership. A bank’s reputation, once established, becomes one of its most valuable assets.
Building Trust with Customers
In an environment of rising competition and evolving customer expectations, the way forward lies in building upon a customer-centric approach that fosters trust, loyalty, and long-term value. It is not enough to meet regulatory thresholds or improve headline numbers. How the financial resources are deployed is important, and every rupee must carry intent, not just interest.
Effective Strategy and Execution
There is a need to translate strategy into action on the ground. The strongest frameworks, whether related to risk, credit, technology, or compliance, are only as effective as their execution at the customer interface. There is a need for clarity, coordination, and accountability while undertaking initiatives like launching a new product, entering a new geography, or rolling out a compliance reform.
Technology and Cybersecurity
The Deputy Governor also stressed the need to match the speed and scale of digital adoption with equally strong investments in cybersecurity, data governance, and ethical safeguards. Technology gaps, if not addressed in time, can become points of systemic vulnerability. He emphasized that technology must never outrun the organisation’s capacity to manage it.
Timing and Contextual Awareness
Swaminathan believes that timing is very important for banks. Contextual awareness on aspects like economic cycles, interest rate shifts, regulatory changes, geopolitical developments, and even climate events should influence when and how decisions should be made. History rewards institutions that act early, rather than those that act perfectly.
Conclusion
In conclusion, the banking system in India is facing challenges due to unethical practices adopted by some lenders. It is essential for banks to pursue growth with systems, people, and processes that are aligned and rooted in ethical practices. Building trust with customers, effective strategy and execution, and investing in technology and cybersecurity are crucial for the long-term success of banks. By adopting a customer-centric approach and being aware of the timing and context of decisions, banks can navigate the challenges and achieve growth while maintaining the trust of their customers.
