The Importance of Ethics in Banking
The Reserve Bank of India (RBI) deputy governor, J Swaminathan, recently expressed his concerns about the management of certain banks and Non-Banking Financial Companies (NBFCs). He stated that the intense competitive pressures and the desire to project short-term success are driving these institutions towards unethical practices.
The Risks of Unethical Practices
Swaminathan warned that such practices risk eroding the public’s trust in the integrity of the banking system. He mentioned that practices such as creative accounting, liberal interpretations of regulations, lenient policy frameworks, and inadequate internal controls are being normalized in some boardrooms. These instances may be limited, but they have the potential to damage the reputation of the banking system as a whole.
The Need for Ethical Practices
The deputy governor emphasized the importance of pursuing growth with systems, people, and processes that are aligned and rooted in ethical practices. He stressed that every bank board and management has a responsibility to deepen the hard-earned trust through service that is responsive, systems that are reliable, and leadership that is responsible. A bank’s reputation, once established, becomes one of its most valuable assets, and it is essential to build upon a customer-centric approach that fosters trust, loyalty, and long-term value.
The Role of Technology
Swaminathan also highlighted the need to match the speed and scale of digital adoption with equally strong investments in cybersecurity, data governance, and ethical safeguards. He warned that technology gaps, if not addressed in time, can become points of systemic vulnerability. The strongest frameworks, whether related to risk, credit, technology, or compliance, are only as effective as their execution at the customer interface.
Learning from History
The deputy governor cited the example of Karur Vysya Bank (KVB) founders, who decided to set up a bank in 1916 in the midst of the first World War. He described this as a bold and timely decision, and stated that history rewards institutions that act early, rather than those that act perfectly. This example emphasizes the importance of taking calculated risks and making timely decisions in the banking industry.
Conclusion
In conclusion, the RBI deputy governor’s remarks highlight the importance of ethics in the banking industry. The pursuit of short-term success and intense competitive pressures can lead to unethical practices, which can damage the reputation of the banking system. It is essential for banks and NBFCs to prioritize ethical practices, invest in cybersecurity and data governance, and build upon a customer-centric approach to foster trust, loyalty, and long-term value. By doing so, they can establish a strong reputation and maintain the trust of their customers.
