RBI Governor Warns Against Careless AI Use

Core News & Key Facts

Reserve Bank of India Governor Sanjay Malhotra has warned financial institutions against adopting artificial intelligence without adequate safeguards, saying careless deployment could create new forms of financial exclusion and instability at a pace that regulators and banks may struggle to manage.

Speaking at the FIBAC 2026 Conference in Mumbai on Tuesday, Malhotra said India is in a strong position to benefit from AI because of its advanced public digital infrastructure. He pointed to Aadhaar, UPI, DigiLocker, ONDC, Account Aggregator and ULI as important components of this digital ecosystem.

According to the RBI Governor, AI layered on top of this infrastructure could significantly transform financial services and accelerate financial inclusion. However, he stressed that innovation must be accompanied by appropriate safeguards.

Context & Statements

Malhotra said AI has the potential to make financial decision-making faster, more detailed and accessible to people at the last mile. He argued that the technology could help address gaps in traditional lending, particularly for new-to-credit borrowers, gig workers and small businesses that may have limited formal financial histories.

AI models could potentially examine alternative information such as cash flows, GST filings, utility payments and digital footprints to help financial institutions assess a wider pool of borrowers. AI-enhanced credit risk models, liquidity forecasting and scenario analysis could also help banks detect signs of financial stress earlier.

The Governor also highlighted potential applications in customer service and grievance redressal. Voice-based AI systems in Indian languages could reduce language barriers, while predictive models could help identify borrowers at risk of default and allow banks to offer counselling or support earlier.

Impact & What's Next

Malhotra made clear that the RBI does not view AI simply as a risk to be controlled. Instead, he said it should be responsibly harnessed while ensuring financial stability and inclusion are protected.

The RBI’s approach is based on recommendations from the FREE-AI Committee and its draft guidelines on Model Risk Management. The framework is intended to be principles-based and proportionate, with regulation adapting as AI technology and associated risks develop.

The Governor said the central bank will continue consulting the financial industry and monitoring emerging developments. For banks, the message is clear: AI adoption is increasingly important, but its benefits must not come at the expense of responsible decision-making, customer protection or financial stability.

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