RBI to prepare framework for ethical adoption of AI in financial sector

The Reserve Bank will prepare a framework for responsible and ethical adoption of artificial intelligence (AI) in the financial sector during the current financial year, the central bank's annual report said.

Driven by rapid advances in computing power and the vast availability of digital data, AI and machine learning (ML) technologies have seen growing interest and significant progress in recent years, with financial institutions globally and domestically increasingly adopting these technologies.

The Reserve Bank will prepare a framework for responsible and ethical adoption of AI in the financial sector, as per the agenda for 2025-26 spelt in the RBI's annual report for 2024-25.

"The Reserve Bank is exploring and implementing AI/ML-driven solutions in its own functions," it said.

It has constituted an external committee in December 2024, comprising experts with a mandate to recommend a Framework for Responsible and Ethical Enablement of AI in the financial sector.

The Reserve Bank said it undertook several measures to safeguard the financial system by further strengthening the regulatory and supervisory framework of banking and non-banking sectors in line with global best practices.

Going forward, the RBI said concerted efforts would be made, inter alia, towards rationalisation and harmonisation of regulations across regulated entities; preparing a framework for responsible and ethical adoption of AI in the financial sector; and strengthening of liquidity stress tests of commercial banks, among others.

Further, fine-tuning the existing complaint management and grievance redress mechanism, including exploring the use of AI, would remain in focus, the report said.

On AI governance policy, the report said framework for AI Policy for the Reserve Bank for responsible and ethical use of AI/machine learning (ML) technologies by employees, vendors, and third-party partners will also be initiated.

By providing clear guidelines on data handling, consent and security, the policy seeks to maintain the integrity of the Reserve Bank's operations while using the opportunities that AI offers, it said.