RBI: Governance lapses behind financial failures

MUMBAI: Warning that governance lapses-not a lack of knowledge-lie at the heart of many financial failures, RBI deputy governor J Swaminathan said institutions often ignore red flags because incentives discourage speaking up, allowing risks to fester until they erupt into crises.

Delivering the keynote address at the 3rd International Finance and Accounting Conference (IFAC) at the Indian Institute of Management Jammu, Swaminathan said: "People knew what was going wrong, but they did not speak up. Or they spoke up, but no one listened. Or everyone noticed red flags, but incentives pushed them to look away."

Swaminathan stressed that leadership, not just technology or capital- will determine whether India achieves its 2047 aspirations of Viksit Bharat. Leadership in finance, he said, is about judgment and discipline. "It is about what you choose to reward, what you choose to question, and what you choose to fix early."

In his address, Swaminathan repeatedly cautioned that scale and speed in modern finance can become double-edged swords if not anchored in governance and discipline. Swaminathan pointed out that India's financial system is operating in an era where products, platforms, and credit models can scale to millions within months. In such an environment, weaknesses are no longer contained - they are amplified. "Harm can scale quickly if design is poor, controls are weak, or incentives are misaligned," he said.

The deputy governor's point was that technology acts as a force multiplier. A flawed underwriting model, an inadequately tested digital product, or a poorly aligned sales incentive does not merely affect a handful of customers-it can affect millions almost at the same time.