Ethical Practices in Banking Sector

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Ethical Practices in Banking Sector

While ethical breaches at mega banks may not be common, they are still a cause for concern.


The banking sector is often considered the standard in the corporate world, with its actions guided by the directives of central banks. This sector is not only highly respected, but it is also believed to be transparent, accountable, and have a high level of integrity. It is a sector that is widely trusted by the general public around the world, as people entrust their earnings and savings to banks, not just for their own financial security, but also to facilitate the operations of the banks themselves. Through these deposits, banks are able to make loans and generate significant profits. While the banking sector is seen as a reliable and trustworthy industry, it is important that it practises ethical behaviour in order to maintain the trust that it has earned.

Lloyds Banking Group was accused of manipulating a key interest rate in order to reduce what it owed to the Bank of England in 2014. Last year, Fed bankers also faced penalties for ethical breaches under a senate proposal. For nearly a decade, India has been raising concerns about the need for ethical practices in the banking industry. While ethical breaches at mega banks may not be common, they are still a cause for concern and unethical practices may be happening under the radar. Ethical violations also appear to exist in the Nepali banking sector. It is important for the banking industry to prioritise ethical behaviour in order to maintain the trust of its customers and stakeholders.

One way to address unethical practices in the banking industry is to implement strict policies. The Nepal Rastra Bank has to take needful initiatives for this. Before that, adequate training should be provided to employees and management teams.

This training should cover ethical practices in the banking industry and be provided to all levels of staff, from lower-level employees to management. Often, employees may not realise that their actions are unethical because they have learned such behaviour from their seniors. By providing proper orientation and training, employees can become more aware of unethical practices and be less likely to engage in them.  

Areas of Unethical Practices in Banking

Information Abuse: Information abuse is an area where banks must prioritise ethical behaviour. There have been instances where bank staff have misused customer information, either consciously or unconsciously, leading to information leakage. This can range from revealing financial information to a spouse to leaking auction bid amounts. While these kinds of breaches may not always be reported, they can undermine customer trust and damage the reputation of the bank.

Greed: Greed among bankers can also lead to unethical practices. This can range from disbursing loans outside of standard guidelines during times of financial crisis, to accepting mortgages that do not meet standard criteria. From junior staff expecting favours to senior staff deviating from policies for personal gain, greed can drive individuals within the banking industry to act unethically.

Transparency: Transparency is also an important aspect of ethical behaviour in the banking industry. Customers may not have a thorough understanding of banking and financial products, so it is important for banks to provide them with clear and accurate information. Banks should not push customers towards purchasing a specific product, but rather provide information about all available options and allow customers to make informed decisions. It is also important for banks to be transparent about changes to interest rates and other terms and conditions, such as in loan products and recurring deposit accounts.

Being neutral: Neutrality is another important factor in the ethical concerns of the banking industry. There have been instances where bankers have shown bias towards certain customers, such as allowing them to skip queues or providing them with special services. This can include prioritising loans or offering subsidies to certain customers. It is important for banks to maintain neutrality and treat all customers fairly, without favouritism or bias.

AML: Banks are often aware of instances of money laundering that may be occurring, whether it is through customers such as importers or those using Hundi systems. It is the responsibility of banks to report such activities to the appropriate authorities in a timely manner. However, it is not uncommon for banks to overlook this additional task, allowing money laundering to continue under their watch.

CSR: Banks have been allocating one percent of their profits to corporate social responsibility (CSR) activities. These funds should be used effectively and efficiently in order to address environmental and social responsibilities. However, there are often no mechanisms to ensure this is happening. Banks have a duty to consider their impact on the environment and society, as they often provide financial support to industries, factories, vehicles, and other organisations that may contribute to carbon emissions.

Environmental Responsibility: Banks also have an ethical responsibility to minimise environmental impacts in their operations, such as reducing the use of paper and air conditioning. While it may be challenging to fully implement paperless banking, banks can work towards minimising their use of carbon-emitting materials and inspiring employees to do the same.

Data Presentation : The presentation of financial data is another area where banks may not always prioritise ethical behaviour. In the pursuit of competitiveness, banks may ignore ethical practices and use financial experts to find loopholes in regulatory norms. While it is important for banks to present themselves as financially strong, using unethical means to do so is not acceptable.

(Regmi is a Deputy Manager at Rastriya Banijya Bank Ltd.)

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