RBI governor Sanjay MalhotraMUMBAI: RBI governor Sanjay Malhotra said AI could do to lending decisions what UPI did to payments and urged banks not to sit on the sidelines as India is well placed to adopt the technology because of its public digital infrastructure and regulatory supervision. His comments at FIBAC 2026 came at a time when the share of credit to GDP remains modest even as bank books are at their healthiest.Malhotra said RBI is putting in place a Digital Payments Intelligence Platform that will augment India’s digital infrastructure, including Aadhaar, UPI, DigiLocker, ONDC, the Unified Lending Interface and Account Aggregator, giving banks a stronger base to use AI across lending and other financial services.“We in India stand at a unique vantage point to leverage AI. We have the most advanced public digital infrastructure, whether it is Aadhaar, the UPI, DigiLocker, ONDC, we are trying to build and improve and expand the Unified Lending Interface, the Account Aggregator,” he said. Citing a BCG report, Malhotra said there is scope to bring down the operational cost-to-income ratio from 47-49% with the help of AI.AI could widen the pool of borrowers by allowing banks to use data beyond conventional financial histories. According to Malhotra, “AI models on alternative data, which we have a lot now—cash flows, GST filings, utility payment bills, digital platforms—they can all extend the frontier of bankable India considerably.” This could be particularly relevant for new-to-credit borrowers, gig workers and underserved sections that lack formal financial records. “Traditional underwriting relies on financial history, precisely the data that is thin or absent for new-to-credit borrowers, for the gig workers, or those underserved sections of our society because they do not have formal books,” he said.At the same time, Malhotra said the explainability of decisions and human accountability were prerequisites. The regulator expects banks to prepare for the risks associated with AI, including opaque decision-making, bias in historical data, concentration around technology vendors, third-party dependence, data privacy and cyber attacks. “The ultimate responsibility has to lie with the bank and not with a vendor or with an algorithm,” Malhotra said.“The broader challenge is to expand credit while cutting operating costs and managing AI risks without compromising financial stability,” he said.Malhotra said AI could widen MSME credit, where a large unserved market remains, and ease access through Indian-language interfaces. AI models using alternative data could widen the pool of bankable borrowers, while AI could also detect fraud in real time.The RBI will adapt its regulation as AI evolves, with a focus on consultation and evidence. Malhotra said it would work with banks rather than “just legislate from a distance” and provide “proportionate, consultative, evidence-based, and agile regulation-making and supervision.”He urged banks to treat AI governance as an immediate priority. “Maintain a complete inventory... please maintain a complete inventory of those models,” he said. He also called for board-approved governance frameworks, greater explainability of AI-driven decisions, red-teaming and stress testing of AI systems.The RBI expects banks, boards, risk officers and technology teams to strengthen AI governance while providing common fraud-detection infrastructure. “We must all work together, we must work deliberately, and we must work with purpose and quickly,” Malhotra said. Banks are also on track to implement Basel III guidelines from the next financial year.