Don't bypass safeguards to grow: RBI tells lenders

MUMBAI: In a pointed caution to banks and non-banking financial companies (NBFCs), Reserve Bank of India (RBI) deputy governor Swaminathan J on Monday warned against the temptation to bypass internal safeguards and regulatory norms in pursuit of growth, saying that competitive intensity should not come at the cost of prudence or governance.

Speaking at the 109th foundation day celebration of Karur Vysya Bank (KVB), Swaminathan acknowledged the progress made by the financial sector but flagged emerging risks in execution, especially when strategic intent is not matched by operational discipline. "Driven by intense competitive pressures and a desire to project short-term success, the management of certain banks and NBFCs appear to believe that the ends justify the means," he said. "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."

While he did not name specific institutions, the message was aimed at reminding the industry of the RBI's stance on governance and ethical conduct. "Though such instances may be limited, they risk eroding the public's trust in the integrity of the banking system," he added.

Swaminathan outlined a five-point framework drawn from the classical Tamil text Thirukkural, encouraging banks to reflect on resources, tools, timing, action, and context when making decisions. He urged boards and managements to ensure that systems, processes and people are aligned with ethical standards "from the boardroom to the branch."

He also stressed that digital tools must be deployed with safeguards.

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