High staff attrition a significant operational risk to banks: RBI Dy Guv

Outsourcing, lack of succession planning and staff skilling also areas of concern, Jain says

High attrition and employee turnover pose significant operational risks, including disruption in customer services, as well as ethical issues for banks, Reserve Bank of India (RBI) Deputy Governor M K Jain said. These issues could have an adverse financial impact on banks, Jain added while addressing board members of banks on Monday.

Among the risk factors that he listed were high attrition, lack of succession planning, (particularly for critical roles) and skilling of staff, besides outsourcing.

Attrition and high employee turnover lead to loss of institutional knowledge and increase recruitment costs. Banks, Jain said, need to ensure that employees have the necessary skills and knowledge to adapt to new technologies and business practices.

Referring to the challenges from outsourcing, the RBI deputy governor said its risks include potential loss of control over critical operations, data security breaches and an increased dependency on third-party providers.

He also said that banks should be careful about process risks since errors, inefficiencies or breakdowns in operational processes can lead to financial losses, compliance failures or customer dissatisfaction.

Risks stemming from ethical issues at the operational level can also have serious repercussions for banks, including reputational damage, legal and regulatory consequences, erosion of customer trust and an adverse financial impact, he cautioned.

Jain also dwelled on technology-related risks and said the fintech revolution in banking is bringing a disruptive paradigm shift. Banking services are now being bundled with other financial and non-financial services and giving consumers the convenience of accessing the full spectrum of financial products.

Indeed, the pace of technological changes is so rapid that banks will have to transform like tech companies, continuously innovating and investing in technological upgrades, he said. The deputy governor added that the risks of cyberattacks, data breaches and operational failures have also increased.