Banks look to artificial intelligence for risk management operations

The AI tools alert department heads of banks of discrepancies in decisions by their staff which flout the RBI or other regulatory norms

With the banking sector being dented by a slew of frauds in recent months, the country’s top banks are increasingly depending on artificial intelligence (AI)-based solutions to improve their internal risk management operations.

These AI tools alert department heads of banks of discrepancies in decisions by their staff which flout the Reserve Bank of India (RBI) or other regulatory norms.

John Santosh, founder of GIEOM, a Bengaluru-based AI software provided, told Business Standard, “Conventionally, banks would have to communicate policy changes (internal or regulatory) through emails or through the banks intranet. This improves operational efficiency and is secure because any policy changes are intimated quickly to the right staff.”

GIEOM scans a bank’s core banking software (CBS) and alerts senior management if a particular employee or branch has bypassed important steps before giving a loan.  

Some of the regulatory compliance norms that have to be followed prior to sanctioning loans include know-your-customer or anti-money laundering norms, and conducting due-diligence on company balance sheets or analysing financial positions of individual customers.

Around 15 banks have introduced GIEOM’s AI-based software. These include the State Bank of India, Federal Bank, South Indian Bank, Bank of Maharashtra, Central Bank of India, IDFC Bank, Yes Bank and IndusInd Bank, among others.

“No one can check every loan that has been given and also ensure that the multiple human business controls are followed, before the transaction is recorded on Finacle or any other CBS,” said Santosh. Banks have implemented AI-based tools to effectively manage issues like training implementation, risk management and loan monitoring.

“Prior to implementation of automated solutions such as GIEOM, communication of regulatory changes to all frontline staff members were done manually through circulars and notices. Given the manual nature of these methods, enforcement was weak, impact measurability was vague and most of these documents were not read by the staff members,” said Eric Anklesaria, vice-president of Banking and Capital Market, Financial Services at Capgemini.

Business Standard sent emails to representatives of the banks mentioned but did not receive a response.

While all commercial banks have a CBS, some have a fully-integrated CBS across all departments and product lines. Others have separate software in silos that are tailor-made by developers for a specific product or department.

A senior banker who deals in risk-management and regulatory compliance said on the condition of anonymity, “There are existing softwares to capture issues related to internal compliance, but there are many versions and they might not be connected to a banks’ CBS. These tools have worked well but only raise red flags as and when it is noticed by a staff member.”

Anklesaria said the main challenge, when it comes to training employees on risk management protocols, is effective communication of policy changes and ensuring there is effective monitoring, especially when there are constant changes in policies or protocols.