The Reserve Bank of India is developing a "sentiment index" to assess aspects beyond financial, such as organisational culture, governance standards, and management behaviour, in order to strengthen its supervision over regulated entities such as banks and non-bank lenders, according to a person aware of the development.
The RBI has access to lots of data, both structured and unstructured, from the entities it regulates, the above-mentioned person told BQ Prime on the condition of anonymity as he is not authorised to talk to the media. The central bank will use that to come up with a sentiment index for aspects that go beyond the financials, he said.
The sentiment index, along with the supervisory data, will also capture possible risks in the system, cues for which may emerge while sifting through data from public filings, media reports, and especially social media, the person said.
As part of the process to come up with a sentiment index, the RBI even called on consultants—Boston Consulting Group, McKinsey, PwC, KPMG and EY—to do a proof of concept for a sentiment index.
These consultants used data from Twitter handles, news reports, social media, local-level news reports, and other sources to create a version of the sentiment index, the above-mentioned person said. One consultant went on to track Twitter more granularly, including well-known influencers, and how their comments impacted sentiment for an institution, the person said.
The proof-of-concept exercise done by engaging consultants helped the RBI further fine-tune and benchmark its pilot sentiment index for banks and non-bank finance companies and improve on its proposed sentiment index.
Such a sentiment index that RBI intends to generate itself will enable supervision to go beyond mere financial information and board-level engagement, which provides mostly cleaned information that is vetted by management.
The sentiment index is to provide the department of supervision team with cues on whether there are any kinks in the system and why such noises are being created against such an entity on any platform, the above person said. The process of generating the sentiment index will involve parsing such external data into specific departments depending on whether the concerns raised are about governance, mis-selling, fraud, employee conduct, service standards, or even technology outages.
Even as the intention behind the RBI's sentiment index is to look at non-financial data for supervision, the fact that the central bank will now track complaints data, and social media handle responses is important. Financial institutions have focused more on complaints submitted via formal systems, but complaints raised on social media platforms end up not getting resolved or receiving only template replies. This will aid redressal of such complaints in a timely manner.
This external data can then be used by the RBI to understand and verify submissions made by the regulated entity as part of supervision, ombudsman data, fraud complaints, and so forth.
The sentiment index will not only help supervision go beyond reported numbers, the person said, adding that the RBI will keep such an index as an internal data point and will only share it with concerned regulated entities when seeking improvements as part of the supervisory process.
T. Bijoy Idicheriah is a senior financial journalist who has been writing on the world of banking and central banking for 17 years.
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