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“… supervision must look beyond formal compliance. Compliance asks whether the rule has been followed. Supervision asks whether the underlying risk has been understood and addressed,” he said in a recent lecture.
While noting that institutions and firms cannot be understood only through reported numbers, Swaminathan said that numbers tell a story, but one must learn to ask what lies behind them.
“The audited balance sheet and information memorandum are useful, but they are not the business. The business is in the factory, on the shop floor, in the market, in the supply chain, in the quality of management, and in the decisions taken. The banker’s job is therefore not to be cynical, but to be curious,” he said.
Swaminathan delivered the 12th G Ramachandran Memorial Lecture at the Madras School of Economics in Chennai on the topic ‘Learning, Judgement and Public Purpose – Lessons from Banking’ on April 30.The lecture was uploaded on the RBI website on Monday.
“A lightly supervised system may appear efficient for some time, because the costs are lower and growth may be faster. But if that growth rests on weak governance, poor credit standards or hidden risks, the eventual cost is borne not only by shareholders or management, but by depositors, borrowers, taxpayers and the wider economy.
“The true value of supervision lies in reducing the probability and severity of such outcomes,” the RBI Deputy Governor said.
Addressing the students, he also mentioned that banking is becoming more digital, more data-driven and more interconnected.
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Credit can now be originated through platforms. Payments move instantly. Algorithms may influence lending decisions. Non-bank entities play a growing role in financial intermediation, he said.
While these changes bring enormous possibilities as they can widen access, reduce costs and improve efficiency, Swaminathan said there are also new questions.
“Is the customer being treated fairly? Is the model understandable? Is accountability clear? Are risks being recognised early enough? These questions cannot be answered by technology alone. They require judgment. They require institutional discipline. They require humility about what we do not know. And above all, they require a sense of public purpose,” he said.