RBI Deputy Governor Urges Small Finance Banks to Adopt Ethical Practices

Reserve Bank Deputy Governor Swaminathan J criticized some small finance banks (SFBs) for engaging in harmful practices like charging excessive interest rates from marginalized groups. He emphasized the need for these banks to adopt responsible lending practices, improve leadership structures, and adhere to cybersecurity and comprehensive data protection measures.

Reserve Bank Deputy Governor Swaminathan J has expressed concern over certain egregious practices by some small finance banks (SFBs). He pointed out issues such as excessive interest rates, advance collection of instalments without adjusting against outstanding loans, and levying heavy fees on borrowers from marginalized sections of society.

Addressing an RBI-organised conference of SFBs in Bengaluru, Swaminathan called for these lenders to adopt sustainable business practices and ensure they have adequate leadership structures. He stressed the need for at least two whole-time directors to avoid potential vulnerabilities during times of transition or unforeseen circumstances.

Moreover, Swaminathan highlighted the importance of responsible customer onboarding, adherence to KYC rules, and attention to cybersecurity and third-party risks. He urged SFBs to engage actively in extending credit under government-sponsored schemes to promote accessibility of affordable credit for vulnerable sections of society.