One of the foremost lessons in banking is not about money, accounting or procedures, but the ability of “judgement”, which comes from experience at the bank counter and dealing with clients, RBI Deputy Governor J Swaminathan said.
Swaminathan added that businesses that appear profitable on paper but remain short of cash, borrowers who explain every delay as temporary, credit proposals that rely more on collateral than cash flows, and loan books that grow faster than a bank can monitor.
“The (Bank) counter teaches you the difference between the presentation and reality,” Swaminathan said, addressing students at the Madras School of Economics on Thursday.
The Counter vs. The Presentation
A career banker and former State Bank of India MD, Swaminathan was delivering the 12th G Ramachandran Memorial Lecture on “Learning, Judgment, and Supervision: The lessons from my own banking career.”
Swaminathan said behind every loan account lies a story and not just a borrower. He said sometimes it is a story of genuine business difficulty, a sound enterprise affected by a shock beyond its control. At other times, it reflects poor judgment like expansion undertaken too quickly or risks underestimated during good times. In some cases, it is a story of deliberate misbehaviour. “A banker must learn to distinguish between these situations. The education of the counter is invaluable,” he said.
Swaminathan, who oversees key verticals at the RBI including supervision, said supervisors are concerned with safety, soundness, governance and the larger public interest while bankers focus on growth, profitability and customer relationships. “This does not mean that the supervisor is indifferent to the difficulties of running a bank,” he added.
Paradox of Supervision
The role of supervision, he said, is not always easy to explain, and its benefits are even harder to measure. How does one measure a crisis that did not happen? How does one calculate the value of a bank run that was avoided, a depositor who was protected, a fraud that was prevented, or a control gap corrected before it became a systemic problem? “This is the paradox of good supervision,” he said.
Some public goods, Swaminathan, said are difficult to price because their greatest value lies in prevention. Financial stability is one such public good taken for granted when present, but deeply disruptive in its absence. Banking supervision, he noted, is one of the institutional mechanisms through which that public good is protected.
Highlighting the shift towards digital-driven banking, Swaminathan said credit can now be originated through platforms, payments move instantly and algorithms may influence lending decisions. While these changes, he said, expand access, reduce costs and improve efficiency, they also raise questions around fair customer treatment, sustainability of business models, accountability and early risk recognition.
“These questions cannot be answered by technology alone. They require judgment, they require institution, discipline… And above all, they require a sense of public purpose.”