Published Jun 09, 2026 | 6:09 PM ⚊ Updated Jun 09, 2026 | 6:21 PM
In India, most customers place their trust on the banking system. This must not be eroded.
Synopsis: Some of the largest banks in India have failed their customers. There’s an immediate need for stronger governance, as our enforcement mechanisms are weak and most customers rely on the system treating them fairly.
The recent controversy over HDFC passing off a higher-than-mandated interest to its favoured customer (the Maharashtra State Road Development Corporation) as marketing costs has thrown the spotlight back on governance failures in our bigger banks.
When a bank—particularly one in the too-big-to-fail list—betrays its customers, it is not a technical glitch or a process failure or a rogue employee benefiting from the bank or its customers. It is a governance failure, which will ultimately erode trust and impact our economic and social progress.
All of us have experienced situations where we cannot access our own money (e.g., ATM or UPI Outage, RBI’s ban on withdrawal) or don’t understand the fee the banks are charging us (e.g., credit card, home loans, and saving bank services) or find that our complaints are not responded to in time (e.g., waiting on phone banking channels or at branches). They are not rare inconveniences; they are recurring events in our life.
In the midst of this, come such jarring instances of favouritism.
Corporate governance regulation and practice are meant for investor protection. It is expected to enhance trust and confidence so that investors prove willing to commit larger amounts of capital and improve valuation multiples. However, it is equally important to assess a business’s corporate governance practices and performance from its customers’ perspective. A bank’s most important stakeholders are its customers.
So, governance must go beyond its shareholders, as bank customers provide the most important raw material in the form of savings, current, recurring and time deposits. Banks leverage deposits to provide greater return on their equity, and deposits are the most important low-cost source of debt for banks. At the same time, the banks provide transaction services in the form of payments and transfers.
It is, therefore, important that the bank’s governance practices and regulations help customers get reliable services, fair and non-discriminatory pricing and compliance with customer protection norms. Banks must also ensure their regulations safeguard customers from operational failure and misconduct, which has often included mis-selling.
Some of the largest banks in India have not lived up to these basic requirements and expectations. RBI has penalised these banks for non-compliance with lending, KYC, customer service norms and improper use of intermediaries, etc. They have also been penalised for technology and reliability failures.
Pricing and fee practices at some of our largest public and private-sector banks have often been opaque and weakly supervised. While some of the failures are seen as arising from their rush to scale up, we have also had cases where the banks indulged in practices that have been viewed as serious governance failures, if not illegal practices.
During recent years, these banks have argued that these failures are caused by technical glitches, one-off rogue employees or simply that they are doing the right things and people (including their own board members or customers) are being unreasonable.
Sorry, no. Repeated outages are oversight failures of the board, and repeated violations of RBI’s rules, guidelines and norms reflect a deeper culture of non-compliance.
In short, banks are breaching their implicit promise that our money is always accessible and safe.
Such behaviours erode trust, particularly among retail customers who lack alternatives and, therefore, depend on bank staff in branches or in their service centres for getting fair treatment, which they rightfully deserve.
A bank making indirect payment through non-transparent pricing mechanisms to secure large deposits is being unfair to its retail customers (and even the shareholders) who are cross-subsidising these large customers. Such a practice violates the principle of horizontal equity among its depositors, i.e., smaller depositors are quietly subsidising the larger ones. This also undermines the legitimacy of the pricing process and raises the question about whether pricing is fair at all.
If a bank is being repeatedly penalised by the RBI or other regulatory authorities, it signals governance weakness and a non-compliant culture rather than customer-centric governance. Similarly, if a board member—such as HDFC part-time Chairman Atanu Chakraborty—resigns citing ethical concerns, it can damage trust capital even if courts have not found any illegal practices.
In the Indian context, we have experienced multiple failure modes in the form of operational (e.g., ATM or UPI outages that deny access to customers’ own money), compliance (e.g., KYC compliance burden and fee practices, which include charging fees without sending statements) and service (e.g., no or delayed complaint resolution) governance failures.
It is not that we don’t have governance failures elsewhere in the world. But we need far stronger board governance practices that combine legal requirements and moral principles, as our enforcement mechanisms are weak, and the retail bank customers don’t have the information, resources, or alternatives to challenge banks.
These customers depend on the system to treat them fairly. So, while such governance failures are not unique to India, they have more serious consequences here.
This places a greater responsibility on banks—and on their boards.
Banks must, therefore, recognise that even small governance failures can produce disproportionate erosion of trust, as customers cannot monitor asset quality or internal controls directly.
Trust is the most important asset for banks, and it depends on reliability of service (not denying access to customers’ money), fairness they display in their conduct, responsiveness to failures and elimination of integrity shocks.
Governance in banking, therefore, cannot be reduced to a checklist of regulatory compliance. It must also reflect a commitment to fairness, accountability, and customer welfare.
Governance failures affect trust through experience and not just legality. It is time that Indian banks and financial institutions start integrating moral principles in their governance model and not just compliance with regulations and practices.
When banks fail customers, it’s not a glitch—it’s a governance failure.
(Edited by R Rajesh Kumar.)
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