Only AI alone can help limit AI frauds, says RBI Governor Malhotra

He said AI could become as significant to the current decade as liberalisation was to the 1990s and digitalisation to the 2010s

Artificial intelligence (AI) will be central to tackling AI-driven fraud as traditional rules-based systems struggle to keep pace with rapidly adapting fraudsters, Reserve Bank of India (RBI) Governor Sanjay Malhotra said at the FIBAC 2026 conference on Tuesday.

 

"It is AI and AI alone that can help limit AI frauds," Malhotra said.

 

Explaining the need for AI-based fraud detection, he said, "Fraud today moves at a speed of an API call. Rules-based fraud engines, however well-designed, are perpetually one step behind the fraudsters, who adapt more frequently. It is only AI and machine learning models, which continuously learn from these transaction patterns, that can identify anomalies in real time, rather than after the loss has occurred."

 

AI to reshape banking

Malhotra said AI could become as significant to the current decade as liberalisation was to the 1990s and digitalisation to the 2010s.

 

"AI holds for this decade what liberalisation held for the 1990s, what digitalisation held for the 2010s," Malhotra said in his inaugural address at FIBAC.

 

He said adopting AI would require changes in how financial institutions assess risk, serve customers, price capital and organise their operations.

 

"AI is a shift to how we evaluate risk, serve customers, price capital, organise institutions. Many of the banks are already doing it, some of them are considering doing it. The important question is: whether you share the AI journey or you let AI shape you," he said.

RBI's regulatory priorities

Malhotra said the RBI's regulatory approach was guided by financial stability, customer centricity, ease of doing business and lower costs of intermediation.

 

"Last year, I spoke about three priorities. Our regulation-making is going to be guided by three or four major priorities. First, financial stability; second, customer centricity; third, ease of doing business and reducing cost of intermediation," he said.

 

"Over the last one year, we have made good progress in all three directions," Malhotra added.

 

On ease of doing business, he said the RBI had reduced the regulatory burden on bank boards and moved towards a more principles- and policy-based framework.

 

"On ease of doing business, we have taken a number of steps. The regulatory burden on the boards has reduced, made it more principle- and policy-based. We let the operational details be handled by the management and consolidated regulatory and supervisory instructions, streamlined the form of business," he said.

 

"All the applications from the regulatory entities and customers, about most of them are automated," he added.

 

The RBI has automated more than 203 application types and delivered 99.9 per cent of services within prescribed timelines. It has also rationalised working capital norms, reviewed bulk deposit pricing and delegated certain foreign exchange-related approvals to authorised dealers.

 

"We rationalised the current account and working capital norms," Malhotra said. "We also reviewed norms relating to pricing of bulk deposits. This was an ask from the industry."

 

"We also delegated certain foreign exchange-related approvals to our authorised dealers," he said.

AI and India's digital infrastructure

Malhotra said AI could help improve efficiency and reduce operational costs.

 

"Certainly, in all these areas, AI has a big role to play. AI multiplies intelligence. I had never thought one can actually do that way back, when I joined college. I did computer science; they said coding is the most difficult of the subjects that humans can actually do. But now coding has become so mundane and easy and routine, because people have now moved on from there to intelligence," he said.

 

"AI holds a lot of promise for us, but there are also risks," Malhotra added.

 

He said India was well placed to use AI because of its public digital infrastructure, including Aadhaar, UPI and DigiLocker.

 

"We, in India, stand at a vantage point to leverage AI. We have the most advanced public digital infrastructure, whether it is Aadhaar, UPI, DigiLocker — we are trying to build an improved, unified lending system aggregator," he said.

 

"These are all public goods, on top of which the private sector can build AI, because it has the potential to do for financial judgement what UPI did for financial transactions, that is, make it instant, granular and available to the last mile," Malhotra said.

Risks to financial inclusion

Malhotra said AI could help expand financial inclusion, but its deployment also carried risks.

 

"AI, well-deployed, can close existing gaps in financial inclusion faster than any preceding technological innovation. Deployed carelessly, it can, at the same time, entrench new forms of exclusion and instability at a pace that regulators and banks may struggle to keep up with," he said.

 

The RBI has set up a committee on the responsible use of AI, which submitted its report last year and proposed a framework for the responsible and ethical use of AI, Malhotra said.

 

"We at Reserve Bank have set up a committee for responsible use of AI and it has come up with a framework for responsible and ethical enablement of AI. It submitted its report last year. It very clearly puts forth the distinction," he said.

 

Malhotra said AI could also change the economics of credit delivery by using alternative data to assess sections of society that lack conventional financial data.

 

"AI changes the economics of credit deliverability fundamentally. Data that is absent for unserved sections of society, AI models on alternative data, which we have a lot now, they can extend the frontier of bankable India considerably," he said.

 

"AI can democratise banking systems," he added.

 

Malhotra also said AI could help reduce banks' operational costs, which currently account for 47-49 per cent of income.

 

"It can also help to reduce operational costs from 47 to 49 per cent vis-a-vis income that needs to be reduced and AI can certainly help us in this regard," he said.