Business ethics and Banking

Limited Companies do have ethical responsibility which is however not protected by limited liability of the Promoters and Directors from the consequences of their actions. The long term success or failure of a company’s reputation depends upon a company’s record and the perception of its ethics. The foundation of the ethics is none of the stakeholders in a business relationship should feel cheated. This is more so in case of banking and financial industry.
Public deposit their money with the Banks for safety and return. Here safety does not merely mean that the money deposited by the individuals and other entities for safety purpose. The depositor should get back safety of the intrinsic value of money. The purchasing value of Rupees one hundred today may not be same after ten years. Due to inflation its real value erodes. Therefore, customer must be compensated with the appropriate rate of interest to match the real value of money deposited by him/her at the end of contractual period to neutralise the impact of inflation. However, banks in India artificially keep deposit rates low to maximize their Net Interest Margin (NIM) between interest earned from lending and cost of funds. Banks are required to lend money received by the customers buy way of deposits. However, due to regulatory instructions from the banking regulator and the government, banks are providing certain types of loans at a rate less than the deposit interest. Banks are incurring huge loss year after years due to bad loans due to their inability to recover the loan amount. To make up such losses and earn profit, banks are paying low interest to depositors, as well levy higher rate of interest on some types of borrowal accounts. Strictly speaking it is not ethical to penalise both depositors and borrowers like this. To do justice to depositors banks must endeavour accepting inflation-indexed deposits like inflation indexed bonds and lend with justifiable margin over deposit rate.
The second ethical question is the protection of small depositors’ money from bank failures. In the global and Indian context we have seen numerous bank failures, both small and large in size. In our country, up to Rs.1 lakh is insured by the DI&CGC (Deposit Insurance and Credit Guarantee Corporation) which was not revised since 1993 despite rise in per capita income and inflation.
Third ethical issue is hidden charges levied by banks from time to time on depositor, borrower or simple service seeker. There should not be any hidden charges cropping up from time to time because of the ‘fine-print’. Therefore, bankers must place moral considerations above legal or opportunistic measures. This is because their business prospers purely on customers’ confidence. The good intentions are most important for business ethics and moral behavior of bankers.
Fourth ethical issue is accounting disclosures made by the banks. The balance sheets with other statutory disclosures published by a bank must reflect full, fair, accurate, timely and understandable disclosure to reflect the true scenario of the bank. The Data and integrity are of paramount importance for banks from the viewpoint of all stakeholders.
Last but not the least bank staff at all level shall take reasonable measures to protect the confidentiality of non-public information relating to their clients.
Conclusion:
Banks run on public trust which, in turn, is a function of ethical principles and moral values they follow. They shall be mindful of the reputation they carry amongst their customers and public at large while discharging their obligations. Bank policies should be customer-centric and ethics should dominate customer service rendered by them.

Related posts:

1.What are Cyber Threats of different types?

2.Ethics in banks and financial institutions

3.What are Intellectual Property Rights?

4. What are Data Security and Privacy?

5. Whistle-blowing in Banks explained

6.Whistle-Blower and Whistle-blowing law in India explained

7.Unethical Behavior: Causes and Remedies

8.Manager as an ethical leader

9. Employees as ethics ambassadors

10.Meaning of Work Ethics and Workplace Ethics

11.How Conflict of interest arises?

12. What is Fair Value Accounting Practice?

13.Employees’ Obligation to Bank and other duty compulsions

14. Ethics at the Individual Level

15. Business ethics and Banking

16.Ethics and ethical theories explained

17.Code of Ethics Manual

18.Benefits of ethical behaviour: Overview