Reserve Bank of India (RBI) Governor Shaktikanta Das has told banks to stop unethical practices like "mis-selling" of products or opening accounts without proper KYC.

Speaking on the theme 'Transformative Governance through Sound Boards', the RBI governor, during the conference of directors of private sector banks, asked the board of directors to focus on strengthening the "internal governance framework" within the bank. "Unethical practices, such as mis-selling of products or the opening of accounts without proper KYC verification need to be curbed."

Das called for staff incentives to be "carefully structured" to avoid encouraging "mis-selling or unethical practices". "While such practices may yield short-term gains, they ultimately expose the bank to significant long-term risks, including reputational damage, supervisory scrutiny, and financial penalties."

The RBI governor says it is "disheartening" to see the nature of some complaints and the observations in its inspection reports. "There are instances where complaints are misclassified as customer queries. We also come across instances of rejected grievances not being escalated to the internal ombudsman of banks."

Das told the boards and their customer service committees to closely look into these aspects to ensure "genuine commitment" to customer centricity. Speaking about proactive governance, Das says "customer centricity" is extremely important in the context of good governance.

"Trust is the bedrock of banking, and the industry fundamentally relies on the faith of depositors and investors for its stability and growth. Building and maintaining this trust requires banks to place customers at the heart of their operations and ensure that products, services, and policies genuinely meet customer needs and expectations," Das says.

He says the flexibility and space available to the banks for formulating their internal board-approved policies in line with the regulatory expectations needs to be used with "utmost prudence", especially when it has a bearing on customers.

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Why the RBI Governor is urging bank boards to rein in 'unethical practices'