Compliance Culture At Indian Banks Far From Satisfactory, Says RBI Deputy Governor

The compliance culture at Indian banks is far from satisfactory, said Reserve Bank of India Deputy Governor MK Jain on Tuesday while pointing to recurring lapses at lenders. Banks need to pay more attention to developing a good compliance and corporate governance culture, Jain said while speaking at the FIBAC 2019 conference, organised by Ficci and the Indian Banks Association.

Between January and July 2019, 70 instances of regulatory non-compliance by commercial banks have been detected and penalties worth Rs 122.9 crore imposed, Jain said. "But fear of fines and penalties will not be enough to keep up with the evolving nature of regulations...instead a financial management system which makes compliance an everyday practice will enable organisations to operate at greater levels of efficiency."

The banking regulator has stepped up action against regulatory breaches over the last two years. However, the quantum of fines imposed on banks are insignificant. As such, many believe they do little to improve compliance.

Jain said that banks must improve internal procedures and policies to create a compliance mindset within the organisation. This, he said, would eventually prove to a competitive advantage as customers and shareholders would benefit.

"A bank or financial institution can suffer if it does not adhere to laws, rules, regulations and related self-regulatory standards or even codes of conducts applicable to its banking activities," Jain said.

He suggested that banks document specific instances of compliance failures in the form of case studies and make them available to employees.

The RBI had first introduced the position  of compliance officers within banks in August 1992. Over time, the scale of their role has grown. "The focus on compliance has gone up significantly especially in relation to know-your-customer, anti-money laundering and suitability of products being offered to customers, "Jain said.

Despite this increased focus, the RBI continues to observe non-compliance with rules, which, in some cases, has led to instances of fraud.

"Some of the big losses suffered by banks on account of frauds could have been avoided, if they had ingrained a good compliance culture, he said.

Jain also highlighted the importance of corporate governance in this context and asked banks to ensure that board level policies percolate through the firm.