Benefits of AI should not overshadow prudent risk management: RBI dy guv

RBI Deputy Governor M Rajeshwar Rao said AI adoption in banking must be measured and responsible, stressing strong governance, ethical use and alignment with long-term stability

Adoption of artificial intelligence (AI) in the banking sector must be undertaken in a responsible and measured manner, said Reserve Bank of India (RBI) Deputy Governor M Rajeshwar Rao, adding that the excitement around AI’s benefits should not overshadow prudent risk management.

 

Speaking at a CNBC-TV18 event on September 16, Rao said, “As AI transforms financial services, it’s clear this is a development that is not a mere upgrade but a major shift impacting products, processes, and operations.”

 

The speech copy was uploaded on the RBI website on Monday.

 

“From the risk perspective, the long-term implications of AI adoption on the financial system remain uncertain but carry potentially far-reaching consequences,” Rao said, adding that it is imperative for the financial sector to approach AI adoption with foresight — investing not just in innovation but also in resilience by building strong governance structures, diversifying dependencies, continually assessing emerging risks, and ensuring their AI strategies align with the long-term safety and sustainability of the financial system.

 

Rao also highlighted that, to build a sustainable, AI-powered financial future, it is important to ensure that AI-driven decisions are ethical, unbiased, and transparent.

 

“This calls for ‘optimistic vigilance’, wherein AI and other technologies in banking are neither feared nor embraced blindly but navigated,” Rao said, adding that the RBI, on its part, will continue to provide an enabling regulatory environment so that together we can build a banking system that not only builds Bharat but transforms it.

 

Rao pointed out that an RBI study of banks’ annual reports shows a sharp rise in references to AI, underscoring its growing strategic importance.

 

He highlighted that surveys conducted by the RBI in 2023 and 2024 found that more than three-fourths of banks have deployed AI-powered chatbots for customer service. This marks a fundamental shift in which AI is no longer just an enabler but a part of decision-making, product design, and customer engagement.

 

“While both demand-side factors (profitability, competition, compliance efficiency) and supply-side drivers (technological advances, data growth, new business models) influence AI adoption, supply-side forces remain the primary catalyst,” Rao said.