The Reserve Bank of India (RBI) has issued a stern warning about the growing trend of unethical practices in the banking sector. Deputy Governor J Swaminathan highlighted how intense competition and short-term success goals are pushing some banks and NBFCs toward questionable tactics. His remarks came during the 109th Foundation Day of Karur Vysya Bank, though the speech was uploaded later.
Swaminathan didn’t mince words. He pointed out that some financial institutions are adopting a mindset where the ‘ends justify the means’. This approach, he cautioned, is deeply concerning and could undermine public trust in the banking system.
Creative accounting, loose regulatory interpretations, weak policy frameworks, and poor internal controls are becoming alarmingly common in some boardrooms. While these cases might be limited, their impact could be far-reaching. The RBI has noticed these trends and is prepared to step in with supervisory measures if needed.
Growth is essential, but not at the cost of ethics. Swaminathan stressed that banks must align their systems, people, and processes with strong ethical standards at every level. From the boardroom to the branch, integrity should be non-negotiable.
He applauded banks like Karur Vysya Bank for setting benchmarks in governance and customer service. Technology, he noted, should be leveraged not just for efficiency but also for financial inclusion. A bank’s reputation is its most valuable asset, and maintaining it requires reliable systems and responsible leadership.
Swaminathan also emphasized the importance of execution. The strongest frameworks in risk, credit, or compliance mean little if they aren’t implemented effectively at the customer level. Clarity, coordination, and accountability are critical, whether launching a new product or entering a new market.
Digital adoption is another area that demands attention. While banks are rapidly embracing technology, Swaminathan warned that cybersecurity, data governance, and ethical safeguards must keep pace. Neglecting these aspects could create systemic vulnerabilities, as recent events have shown.
Reflecting on Karur Vysya Bank’s origins in 1916 during World War I, Swaminathan noted that history favors institutions that act decisively rather than waiting for perfection. It’s a lesson that remains relevant today as the financial sector navigates challenges and opportunities alike.
The message is clear: The RBI will not tolerate practices that compromise trust. Banks must choose long-term integrity over short-term gains.