Risk pricing, sound underwriting crucial to sustainable growth: RBI DG

Banks need to ensure appropriate risk pricing, sound underwriting and a clear assessment of borrowers’ repayment capacity to sustain growth, Reserve Bank of India (RBI) Deputy Governor Swaminathan J said.

Delivering a speech at the Leadership Conference of Indian Bank in Chennai last month, he emphasised that a stable and diversified deposit franchise is equally important to support credit expansion. The speech was uploaded on the RBI website on Tuesday.

Swaminathan said one of the most valuable contributions of senior management is to identify talent, entrust people with responsibility and prepare them to exercise independent judgement. “This involves more than formal succession planning. It requires creating opportunities for younger colleagues to take initiative, learn from experience and develop the confidence to lead.”

Growth is essential to the banking sector’s role in supporting India’s economic development, but it must be balanced, appropriately funded and consistent with long-term institutional strength, he said.

“Growth remains essential to the banking sector’s role in supporting India’s economic development. However, its sustainability depends on sound underwriting, appropriate risk pricing, and a clear understanding of borrowers’ repayment capacity,” he said.

Swaminathan also highlighted how changing household savings preferences and greater choices among financial products were altering the environment for deposit mobilisation. Banks now operate within a wider financial ecosystem comprising fintech companies, technology platforms and other service providers, creating new opportunities for collaboration while changing competitive dynamics.

He said technological developments, including digital payments, artificial intelligence and advances in data analytics, were reshaping banking and customer expectations. Banks needed to harness these technologies to improve customer experience, operational efficiency and competitiveness.

The deputy governor also stressed that operational and technological resilience had become as important as credit and market risk. Cybersecurity, data protection, business continuity and effective oversight of third-party service providers must be integral to institutional planning, he said.

He also emphasised the importance of governance, transparency, internal controls and accountability, along with responsible lending, fair customer treatment and effective grievance redressal to maintain public confidence.

“Governance must be reflected not only in policies and procedures, but also in the quality of decisions taken throughout the institution. Clear accountability, effective internal controls, transparency and a willingness to identify and address emerging issues are essential. Responsible lending, fair customer treatment, and effective grievance redressal remain central to public confidence. Ultimately, an institution’s reputation is built on how consistently it fulfils its responsibilities to customers and other stakeholders,” he said.

The banking system, he said, was approaching the task of preparing for future challenges from a position of strength, with improvements in asset quality, capital adequacy and profitability providing a sound foundation.

Swaminathan also called on bank leaders to invest in developing talent, encourage differing viewpoints and prepare younger employees for leadership responsibilities, saying institutional strength must extend beyond the tenure of individual leaders.

According to Swaminathan, the legacy of leadership extends beyond business achievements or individual milestones. It lies in the quality of the institution handed over to those who follow — its people, its systems, its values and its capacity to meet future challenges.

“A leader’s most enduring achievement may well be an institution that continues to grow stronger long after the leader has moved on,” he added.