RBI Governor Shaktikanta Das on Monday asked bank boards to strengthen their internal governance framework to curb unethical practices, such as misselling of products or opening accounts without proper KYC verification.
Das suggested that the incentives for bank staff should be carefully structured so as not to encourage them to indulge in unethical practices.
"While such practices may yield short-term gains, they ultimately expose the bank to significant long-term risks, including reputational damage, supervisory scrutiny, and financial penalties,” he said in a keynote address at the Conference of Directors of Private Sector Banks.
The Indian banking sector is transitioning through a time that is replete with opportunities as well as risks and challenges, Das added.
The banking sector remains strong and stable. All the financial indicators have improved since we met in May last year, reflecting the efforts of the various participants of the banking sector, including their management and boards.
The governor emphasised that strong fundamentals ought to be leveraged to reinforce and fortify the defences in order to keep the resilience of the banking system intact.
"Good times, after all, are the best times to reinforce resilience and grow sustainably,” he added.
Das also said that in the rapidly evolving and technology-driven environment, organisations face significant challenges and risks.
Factors like technological advancements, the rise of new-age fintech entities, third-party dependencies, and climate change are reshaping the economic landscape, he added.
Das suggested that the bank boards should serve as a lighthouse for lenders and provide steady guidance to help navigate these challenges and steer towards safe and prosperous shores.
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