In a significant address on Friday, Reserve Bank of India (RBI) Deputy Governor Swaminathan J called for a radical transformation in the approach to banking oversight. He stressed that the era of periodic, point-in-time assessments is over, and regulators must adopt a model of continuous awareness to safeguard financial stability against rapidly evolving digital threats.
Why Traditional Banking Supervision is No Longer Enough
Speaking at the Third Annual Global Conference of the College of Supervisors, Swaminathan highlighted the inadequacy of conventional supervisory tools that focus primarily on balance sheets and process inspections. He warned that a bank might look perfectly healthy on paper but could be "one incident away from severe disruption." The digital age, he noted, has shifted the centre of gravity from traditional 'branch and product' models to the underlying 'pipes and code'.
This shift means that a bank's stability now hinges as much on operational resilience, data integrity, and third-party dependencies as it does on traditional metrics like capital and liquidity. Swaminathan emphasised that compliance can no longer be treated as a quarter-end exercise. With faster operational cycles, institutions must maintain robust operational discipline and data governance consistently throughout the year.
Consumer Grievances as an Early Warning System
The Deputy Governor pinpointed consumer protection mechanisms as a critical early-warning signal for supervisors. He argued that weak grievance redressal systems should not be dismissed as minor issues. From a regulatory standpoint, it is essential to evaluate not just the existence of complaint frameworks but their actual performance.
Key performance indicators include the timeliness of resolution, identification of root causes, analysis of repeat failures, and whether bank boards receive clear dashboards highlighting complaint trends and customer pain points. "When an anomaly is flagged, the ability to explain it and fix it quickly becomes a marker of control maturity," Swaminathan stated.
Expanding the Supervisory Lens: Ecosystem and Third-Party Risks
Swaminathan advocated for a broader supervisory vision that extends beyond individual banks to encompass the entire ecosystem in which they operate. The regulatory question must evolve from simply asking "did you comply?" to probing whether institutions can withstand stress, recover swiftly, and protect customers during crises.
A major area of concern he flagged is third-party risk. The Deputy Governor made it clear that outsourcing services does not mean outsourcing responsibility. Banks must enforce tighter oversight of their partners, ensure clear accountability for incidents, and draft contracts that explicitly support audit rights, data access, and resilience standards.
Looking ahead, Swaminathan warned that as Artificial Intelligence (AI) and advanced analytics become deeply embedded in banking, institutions should prepare for more intensive supervisory scrutiny. Regulators will focus heavily on model risk, explainability, and fairness, signalling a future of more intrusive and continuous oversight in the digital era.
