Hello everyone,    
 
Welcome to the 195th edition of The Pattern — a weekly newsletter on the latest in finance, technology, and the economy.  

Every time a financial scandal breaks, the instinct is to treat it as an isolated failure. Perhaps a rogue employee or a mistake at a single branch. 

Spend enough time around financial institutions, and a different picture emerges. 

In reality, problems inside financial institutions build slowly before anyone notices. 

This week offered two reminders of how that happens. 

First, the ₹590 crore fraud uncovered at an IDFC First Bank branch. The discovery triggered investigations, wiped out a large amount of market value in a single trading session, and raised uncomfortable questions about internal controls. On paper, it looks like a branch-level incident. In reality, cases like this usually reveal something broader about how risk is monitored inside the institution. 

Then there was another story that received less attention but said just as much about how financial systems work. Investigators arrested three bank managers who allegedly helped open mule accounts used in cyber-fraud operations worth more than ₹180 crore. According to reports, account-opening procedures were bypassed and fraudulent accounts slipped through the system. 

These stories come from different corners of the banking system, but they point to the same weakness. 

When controls weaken, risk rarely arrives in dramatic waves. It slips in through ordinary processes such as account openings, approvals, and reconciliation checks. These are things that happen hundreds of times a day but often become flashpoints for fractures. 

Against that backdrop, a speech by RBI Deputy Governor J. Swaminathan this week seemed particularly relevant. He warned that many financial failures ultimately come down to governance lapses, not a lack of knowledge or sophisticated risk models. In other words, institutions often understand where vulnerabilities lie. The breakdown happens when incentives discourage escalation or when early warning signs are brushed aside. 

We’ve seen versions of this play out before. A control that once mattered starts being treated as procedural friction. A small deviation gets rationalised because nothing went wrong the last time. Over time, the system adapts around the exception rather than the rule. 

The difficult part about governance failures is that they rarely show up immediately. They accumulate in the background until one incident forces everyone to pay attention.

Technology has made financial systems faster and more scalable. That same speed can magnify governance weaknesses. A flawed process that once affected a handful of accounts can now affect thousands.

Which is why the RBI’s message matters. Financial stability is often discussed in terms of capital buffers, liquidity ratios, or macroeconomic shocks. Those things matter. But many failures begin much earlier, inside everyday operational decisions. 

The uncomfortable truth is that most institutions don’t fail because they misunderstand risk. They struggle because the systems designed to manage risk stop functioning the way they should. 

And by the time that becomes visible, the problem has usually been simmering for a while. 

That’s all for this week. See you next time! As always, leaving a reading list below.

Reading list 

• Loans priced below 9% jump to 62.4% after RBI rate cuts, shows data 

• RBI’s new misselling news could mark a turning point – if enforcement allows 

• Global Banks Find Access to India's $4 Trillion Economy Comes at a Price 

• 38 Per Cent Women In Rural And Semi-Urban India Use UPI Weekly For Daily Essentials: Survey 

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Cheers, 
Mayank 

All opinions expressed are my own and do not necessarily reflect the views of FinBox or its promoters.