Artificial intelligence (AI) can fundamentally change the way credit is delivered by enabling lenders to assess borrowers using alternative data, in the manner how UPI has transformed payments, Reserve Bank governor Sanjay Malhotra has said.
AI could widen the credit net by using alternative data such as GST filings, cash flows and payment records to assess new-to-credit borrowers, he said. At the same time, he also called for greater caution in using AI, urging banks to treat AI adoption as a strategic, board-driven exercise rather than a collection of separate technology projects.
“It will require a deliberate, board-driven strategy, backed by sustained investment, and most importantly, a strong intent, rather than a series of disconnected projects,” Malhotra told the national banking summit (Fibac) here Tuesday.
The governor further said AI could help banks expand the “frontier of bankability” by allowing them to look beyond conventional financial histories when assessing new-to-credit borrowers and underserved sections of society.
“AI models on alternative data such on cash-flows, GST filings, utility payment bills etc could help banks extend credit to customers who may not have sufficient traditional credit history,” he said.
Stating that banks cannot afford to sit on the sidelines as AI adoption accelerates, he said AI should be viewed as a capability to be responsibly harnessed, rather than merely as a risk to be contained.
The country has a particular advantage in deploying AI in financial services because of its digital public infrastructure, including Aadhaar, UPI, DigiLocker, the account aggregator framework and the unified lending interface, Malhotra said.
These platforms provide a foundation on which private-sector lenders can build AI applications, potentially making financial services faster, more granular, and more accessible at the last mile.
“AI, well-deployed, can close existing gaps in financial inclusion faster than any preceding technological innovation,” he said.
AI could also help banks improve customer service and operational efficiency, he said, adding relationship managers equipped with AI systems could serve more customers by providing relevant product recommendations and risk alerts, while AI-assisted grievance redressal and financial guidance could improve service quality.
Fraud detection is another area where AI could have a significant impact. Rules-based fraud engines can fall behind increasingly adaptive fraudsters, while AI and machine-learning models can continuously learn from emerging patterns and identify anomalies in real time.
However, Malhotra warned that careless deployment of AI could create new forms of exclusion and instability. Banks will need to address risks around algorithmic bias, concentration, third-party vendors, data privacy and cyber threats.
“No matter how sophisticated the model may be, for a bank’s decision, the ultimate responsibility has to lie with the bank, and not with the vendor or the algorithm,” the governor said.
Meanwhile, he said the interconnectedness of the financial system has made growing geopolitical and trade-related uncertainties, along with cyber threats, key risks facing the economy and banking sector.
“What we’re facing, and it’s not only the West Asia crisis, but a lot of other uncertainties including trade related, trade tariff related uncertainties. This is one, and the other is cyber risk,” he said.
Meanwhile, the governor also said BRICS nations are discussing how to link payment systems and CBDCs.
"Cross-border payments is an area of interest for all of us, including the BRICS, because we feel there is a lot of scope for reducing cost. Various options are on the table, but it is still at discussion stage, including CBDCs (central bank digital currencies) and linkages of fast payment systems," Malhotra said.
He also said RBI will also continue its efforts to internationalise the rupee and promote the use of local currencies for cross-border payments and trade.
