Balance sheets no longer tell the full story of bank risk: RBI DG Swaminathan

Banking supervision can no longer rely only on balance sheets and compliance checklists as digitisation reshapes risks, Reserve Bank of India Deputy Governor Swaminathan J said on Friday, calling for a sharper focus on operational resilience, third-party dependencies and customer protection. What did Deputy Governor Reserve Bank of India say? Speaking at the third annual global conference of the College of Supervisors in Mumbai, Swaminathan said banks could appear financially sound on paper yet remain “one incident away from severe disruption” because stability increasingly depends on technology systems, data integrity and external service providers rather than just capital and liquidity. He said that compliance cannot be treated as a quarter-end activity. “With faster cycles, banks will need stronger operational discipline and data governance throughout the year. When an anomaly is flagged, the ability to explain it and fix it quickly becomes a marker of control maturity.” Swaminathan also said that third-party management must be treated as risk management. He added that institutions would need better oversight of partners, clearer accountability for incidents, and contracts that support audit, access, and resilience. “The regulated entity cannot outsource responsibility.” Navigating AI Risks and Model Explainability With Artificial Intelligence (AI) and analytics becoming more embedded, he added that financial institutions should be prepared for more intensive supervisory questions on model risk, explainability, and fairness. “Two issues deserve particular attention. One is reliance on vendor models and embedded tools, in which the institution may use the output without fully understanding the underlying engine. The second is fairness and unintended exclusion, where data proxies can produce outcomes that appear efficient but are unacceptable. Governance is what allows innovation to scale safely,” he said. He also said that financial institutions should focus on strengthening their customer grievance systems. Swaminathan stressed that the intent of tougher, more vigilant supervision is not to impede innovation, but to ensure that digital finance rests on trust, resilience and fairness, for customers as well as for the system.