It sounds like the technology you experienced is a call-agent blocker. These systems are designed to reduce fraud by not giving the call center your information, instead they transfer you to a computer who will process your pin, then if correct, will transfer it back to the calling agent. In this way, the agent can verify your identity without ever hearing your pin, reducing the chance the call center agent might memorize your pin (pen and paper is usually prohibited in a call center). Also, when you type in the code it is not usually recorded by the audio recording in most cases (it is replaced with beeps that repeat until you transfer back to the call center agent)
You are not on an encrypted channel, unless you have a special phone network to call your bank. Therefore, any attack on GSM or the POTS line, the VoIP system at the call center, etc. is not going to be affected. This will protect you from the call center agent committing identity theft, but not any other attacks.
The likelihood of an attacker compromising your line is relatively low, and any electronic fraud can often be reversed. If someone is taping your line, they probably already own you.
If you are describing a different technology, please let me know and I will adjust the answer.