Unethical practices by some banks, NBFCs threaten trust in system: RBI DG

With the ambitious goal of a developed India by 2047, banks will need to adapt continuously to serve a more aspirational, mobile, and digitally connected population, he said

Driven by the desire for short-term success, the management of some banks and non-banking financial companies (NBFCs) are resorting to unethical practices, prompting supervisory intervention, said Swaminathan J, deputy governor of the Reserve Bank of India (RBI). Such instances, though limited, risk eroding public trust in the integrity of the banking system, he added. 

 

“…Driven by intense competitive pressures and a desire to project short-term success, the management of certain banks and NBFCs appears to believe that the ends justify the means,” he said, adding that practices such as creative accounting, liberal interpretations of regulations, lenient policy frameworks, and inadequate internal controls are being normalised in some boardrooms — necessitating supervisory intervention. 

   

“Though such instances may be limited, they risk eroding the public’s trust in the integrity of the banking system,” Swaminathan said in his address at the 109th foundation day of Karur Vysya Bank earlier this week. The speech was uploaded on the RBI website on Tuesday.

 

He emphasised that growth must be pursued with systems, people, and processes that are aligned and rooted in ethical practices — from the boardroom to the branch.

 

With the ambitious goal of a developed India by 2047, banks will need to continuously adapt to serve a more aspirational, mobile, and digitally connected population. Swaminathan noted that banks must assess whether their branch network, sectoral mix, and credit exposures are in sync with the evolving landscape.

 

While expanding into new markets or product segments is essential, it must be backed by capacity building — in terms of people, processes, and local knowledge. The most effective banks, he said, are those that understand both their own strengths and the environment in which they operate.

 

The deputy governor also underlined that it is the responsibility of every bank’s board and management to strengthen the trust of customers through responsive service, reliable systems, and responsible leadership.

 

For banks, he said, it is not enough to meet regulatory thresholds or show improved headline numbers. What matters more is how financial resources are deployed — whether towards inclusive lending, long-term investment, or business models that promote trust and transparency.

 

“Every rupee must carry intent, not just interest,” he said, adding that in an environment of rising competition and evolving customer expectations, the way forward lies in adopting a customer-centric approach that nurtures trust, loyalty, and long-term value.

 

According to Swaminathan, a bank’s reputation, once built, becomes one of its most valuable assets.

 

He also highlighted that the rapid digital adoption by banks must be matched by strong investments in cybersecurity, data governance, and ethical safeguards.

 

“Recent global and domestic experiences have shown that technology gaps, if not addressed in time, can become points of systemic vulnerability,” he said, stressing that technology must never outpace an organisation’s capacity to manage it. “Directors and senior management must lead this conversation, ensuring that risk, compliance, and internal audit functions have the resources and visibility needed to keep pace.”