Intense Competition Making Some Lenders Adopt Unethical Practices, Says RBI DG Swaminathan

Speaking at the 109 th Foundation Day of the Karur Vysya Bank on Friday (the speech was uploaded on Tuesday) Swaminathan said managements of such lenders feel the “ends justify the means”, and
warned that such practices risk eroding the public’s trust in the integrity of the banking system.

“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.”

“Therefore, it is important to pursue growth with systems, people, and processes that are aligned and rooted in ethical practices—from the boardroom to the branch,” he added.

He said that the central bank expects banks like KVB to continue evolving-setting benchmarks in governance and customer service, empowering its assurance functions, and using technology not just for efficiency, but for inclusion.

“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,” he said.

A bank’s reputation, once established, becomes one of its most valuable assets. In an environment of rising competition and evolving customer expectations, the way forward lies in building upon a customer-centric approach that fosters trust, loyalty, and long-term value. It is not enough to meet regulatory thresholds or improve headline numbers, he said, adding that how the financial resources are deployed is important. “Every rupee must carry intent, not just interest,” he said.

There is a need to translate strategy into action on the ground, Swaminathan said, adding that the strongest frameworks — whether related to risk, credit, technology, or compliance — are only as
effective as their execution at the customer interface.

There is a need for clarity, coordination, and accountability while undertaking initiatives like launching a new product, entering a new geography, or rolling out a compliance reform, he added.

The RBI deputy governor said there is a need to match the speed and scale of digital adoption with equally strong investments in cybersecurity, data governance, and ethical safeguards, and added that
technology gaps, if not addressed in time, can become points of systemic vulnerability as has been shown by recent events.

Citing the example of Karur Vysya Bank (KVB) founders that decided to set up a bank in 1916 in the midst of the first World War as a bold
and timely decision, Swaminathan said history rewards institutions that act early, rather than those that act perfectly.