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The Deputy Governor of the Reserve Bank of India (RBI) has issued a very serious and thoughtful statement regarding the country’s banking and financial sector and has warned in clear words. During a high-level banking conference held in Mumbai, he said that the biggest asset of the banking system is not technology or profit, but the unwavering trust of the customers, and in the present times this trust is gradually weakening. In this era of rapidly increasing digital transactions, the central bank has expressed deep displeasure over the way financial institutions are using sensitive personal and financial data of customers. The Deputy Governor bluntly said that if banks do not give top priority to data security, transparency and ethical business conduct, then serious challenges may arise to financial stability in the times to come.
In his address, the Deputy Governor underlined that many commercial banks and non-banking financial companies (NBFCs) are forgetting basic banking decorum in the race for digital expansion. Customers’ data is being shared without their consent with third-party fintech companies, recovery agencies or telecalling platforms, leading to a flood of unwanted calls and unauthorized loan offers. The top official of the central bank clarified that customer data is only for the smooth functioning of banking services and not as a means of aggressive cross-selling or profiteering. Banks need to understand that breach of data privacy is not just a disregard for rules, but a direct attack on the basic social contract that has existed between an account holder and the bank for centuries.
Since the Corona period, UPI, mobile banking and net banking have expanded at an unprecedented pace in the country, but along with it the network of cyber crimes, API leakage and phishing scams has also spread rapidly. The Deputy Governor expressed special concern over the fact that in cases of fraud it is often seen that sensitive information of customers gets leaked from the system itself. When a fraud happens to a common man, banks often shirk their responsibility and try to put the entire blame on the carelessness of the customer. RBI has warned that this attitude will not be acceptable at all. If a bank’s internal IT infrastructure or vendor management system is found to be weak, the bank management will be held personally accountable and strict punitive action will be taken.
The involvement of Artificial Intelligence (AI) and Machine Learning has increased rapidly in modern banking, which is being used for credit profiling of customers, loan approval and risk assessment. The Deputy Governor pointed out that many algorithms are being designed in a biased manner, thereby depriving customers from weaker sections of the society or remote areas of financial services without any solid basis. RBI is considering issuing detailed guidelines soon to ban such opaque ‘black box’ models. Financial institutions must ensure that their AI and automated tools are completely fair, interpretable and within the regulatory guidelines, so that no consumer’s basic rights are violated.
The Deputy Governor also expressed strong dissatisfaction over the current status of customer service and internal ombudsman system. He said that the huge number of complaints reaching the Banking Ombudsman shows that the internal grievance redressal structure of banks is either inactive or is not taking the problems of customers seriously. When an account holder’s problem is not resolved at the branch or bank level for months, then he is forced to approach the regulator. The Deputy Governor directly questioned the Boards of Directors of banks as to why they consider customer service and data governance only as formal agenda items. He directed that the board of each bank should conduct regular independent reviews of data security and customer satisfaction.
Despite the spread of digital banking, a large population of the country still relies on physical branches and human behavior of bank employees. The elderly, pensioners and small traders in Uttar Pradesh’s capital Lucknow, Kanpur or other non-metropolitan areas often feel uncomfortable with the digital complexities. The Deputy Governor advised banks not to rely only on digital interfaces, but to promote empathetic interaction with customers at branches. Unless the ground staff of the bank is sensitive, the lost trust cannot be regained by any technology. Running financial literacy and data awareness campaigns at the local level should no longer be an optional activity of banks but a mandatory duty.
In the concluding session of the speech, the Deputy Governor emphasized that the sustainable growth of the banking industry cannot be determined by the size of the balance sheet or quarterly profits alone. History is witness to the fact that whenever a financial institution has played with the trust of its customers, its collapse is certain. Banks will have to abandon the mindset of short-term profits and focus on long-term credit building. The central bank has clearly indicated that it will tighten the monitoring of data audit, cyber security review and customer protection norms in the coming days, so that the credibility of the Indian banking system does not get affected.