Banking cannot be understood only through numbers, models or regulations: RBI Dy Governor

New Delhi [India], May 4 (ANI): Reserve Bank of India (RBI) Deputy Governor Swaminathan J on Monday highlighted that banking must be understood beyond numbers, models and regulations, emphasising the role of judgment, experience and public purpose in financial decision-making.
Delivering the G Ramachandran Memorial Lecture at Madras School of Economics, he said, "Banking cannot be understood only through numbers, models or regulations, though all three are important. It must also be understood through experience, institutional behaviour and the public purpose that finance is meant to serve."
Drawing from his banking career, he highlighted that credit decisions are inherently uncertain and require informed judgment. "Credit is a judgment about the future. Will this borrower repay? Will this business generate the cash flows it has projected?" he said, underlining that such decisions go beyond theoretical models.
He further noted that banking institutions operate on trust and multiple commitments, including safeguarding depositors' money and ensuring fair access to credit, while also supporting broader developmental objectives.
Emphasising the role of supervision, he said regulators must look beyond formal compliance to assess underlying risks. "Compliance asks whether the rule has been followed. Supervision asks whether the underlying risk has been understood and addressed," he stated.
He also highlighted the importance of financial stability as a public good, noting that its value often lies in prevention rather than visible outcomes.
Swaminathan J stressed the need to combine theoretical knowledge with real-world exposure. He said institutions and firms cannot be understood only through reported numbers, as these may not fully reflect underlying risks, governance quality or operational realities.
He further pointed to the evolving nature of banking, which is becoming more digital and data-driven, while cautioning that key challenges remain unchanged. "These questions cannot be answered by technology alone. They require judgment. They require institutional discipline. They require humility about what we do not know and above all, they require a sense of public purpose," he said.
He added, "Sound finance is therefore not only a matter of profitability, but also of responsibility," highlighting the broader impact of financial decisions on the economy and society. (ANI)