“We have much at stake –building further on the highly successful Pradhan Mantri Jan-Dhan Yojana (PMJDY), an MSME credit market, still underserved, estimated at the tens of lakhs of crore rupees, a retail credit culture that is only now maturing, customer service that can be vastly improved, intermediation costs that can be reduced further; and digital frauds that must be curbed,” he said addressing at the FICCI-IBA Annual Banking Conference.
The RBI Governor was speaking on the theme Winning in the AI Era: The New Playbook for Indian Banks.
“We need to leverage AI for this. The banks that will win in the AI era will not necessarily be the ones that adopt the most AI, or the fastest,” Malhotra noted.
“They will be the ones that adopt it with the deepest understanding of what they are deploying, the clearest accountability for its outcomes, and the strongest commitment to the customer’s trust that has always been, and will remain, the true capital of Indian banking,” he said.
Malhotra said role of the bank boards, the risk officers, the technologists and the regulator is critical and they must work together deliberately and quickly.
“AI, deployed well, can close existing gaps in financial inclusion faster than any preceding generation of technology,” he said.
However, Malhotra warned that if AI is deployed carelessly, it can also entrench new forms of exclusion and instability at a pace regulators and banks may struggle to keep up with.
Reserve Bank sees AI as a capability to be responsibly harnessed and not merely as a risk to be contained, he said.
Malhotra urged banks to ask themselves as to where it stands in AI adoption and how does it accelerate the adoption.
“You will need to invest in technology: IT infrastructure, talent, skilling and reskilling, forging sustainable partnerships and building governance structures,” he said.
“None of this happens overnight, and none of it happens by accident. It requires a deliberate, board-driven strategy, backed by sustained investment, and strong intent rather than a series of disconnected projects, the RBI Governor said.
He also listed the Case for AI in Indian Banking and also flagged the risks that should be taken into account.
“The Reserve Bank’s approach to AI, articulated through the FREE-AI Committee’s recommendations and draft guidelines on Model Risk Management resolves the tension between the promise and the risk of AI. It rests on a simple philosophy: innovation and safety are not opposing goals; they are complementary requirements of a durable financial system,” Malhotra said.
He said RBI is committed to engaging with the industry as AI and its risks evolve.
“Through a willingness to learn alongside you rather than regulate from a distance; and to providing proportional, consultative, evidence-based and agile regulation making and supervision,” Malhotra said.
He said RBI is committed to providing the regulatory sandbox as a safe space for testing innovative use cases.
“We shall continue to facilitate and catalyse development of common utilities such as MuleHunter and the proposed Digital Payments Intelligence Platform to strengthen fraud detection and safeguard the system,” Malhotra said.
Read the text of full speech here: https://www.rbi.org.in/scripts/BS_SpeechesView.aspx?Id=1567