The Reserve Bank sees Artificial Intelligence (AI) as a capability to be responsibly harnessed and not merely as a risk to be contained, and Indian banks cannot afford to sit on the sidelines on this front, according to RBI Governor Sanjay Malhotra.By harnessing AI capability, the economics of credit delivery changes fundamentally, banks can serve customers better and enhance their operational efficiency, he said at the FICCI-IBA Annual Banking Summit.The Governor noted that traditional underwriting relies on financial history – precisely the data that is thin or absent for a new-to-credit borrower, a gig worker, or a small enterprise without formal books.However, AI models, trained on alternative data – cash flows, GST filings, utility payments, digital footprints – can extend the frontier of “bankable” India considerably further than manual underwriting ever could, at a fraction of the marginal cost per loan.At the same time, AI-enhanced credit risk models, liquidity forecasting, and scenario analysis allow banks – and, indeed, RBI – to see emerging stress earlier than lagging financial statements permit.Malhotra observed that AI allows banks to serve customers better – provided it is used to augment rather than merely replace human judgment.“A relationship manager assisted by an AI system that presents the right product, the right risk flag, can serve a higher number of customers more efficiently. AI-assisted grievance redressal, and personalised financial guidance can enhance service quality to customers,” he said.The Governor underscored that for a country of India’s size and diversity, AI has the potential to be a profoundly inclusive technology. Voice interfaces in Indian languages can simplify banking by removing the language barrier.Moreover, predictive models can identify borrowers on the cusp of default early enough to counsel rather than merely recover. Used well, AI may be the most powerful accelerator to financial inclusion.Malhotra said there is scope to reduce cost to income ratios or intermediation costs in India. Effective adoption of AI can significantly improve the productivity of Indian banks across operations, sales and customer service, and credit and collections, he added.Further, document processing, reconciliation, and internal audit sampling are all ripe for AI-assisted automation, freeing skilled staff for judgment-intensive work. It can automate transaction reporting, and regulatory return preparation, reducing both compliance cost and the operational risk of manual error.With fraud today moves at the speed of an API call it is.AI that can beat AI delivered fraud, emphasised the Governor. “A rules-based fraud engine, however well designed, is perpetually one step behind a fraudster who adapts more frequently. It is only machine-learning models which continuously learn from transaction patterns and can identify anomalies in real time rather than after the loss has crystallised,” he said.Investment in the right technologyIn this regard, Malhotra said Banks will need to invest in technology: IT infrastructure, talent, skilling and reskilling, forging sustainable partnerships and building governance structures.“None of this happens overnight, and none of it happens by accident. It requires a deliberate, board-driven strategy, backed by sustained investment, and strong intent rather than a series of disconnected projects,” he said.AI, layered on top of the public digital infrastructure -- Aadhaar, UPI, Digilocker, ONDC, has the potential to do for financial judgment what Unified Payments Interface (UPI) did for financial transactions: make it instant, granular, and available, per Malhotra.“AI, deployed well, can close existing gaps in financial inclusion faster than any preceding generation of technology. Deployed carelessly, it can also entrench new forms of exclusion and instability at a pace regulators and banks may struggle to keep up with,” he said at FICCI-IBA’s Annual Banking Summit.The Governor noted that banks that will win in the AI era will not necessarily be the ones that adopt the most AI, or the fastest.They will be the ones that adopt it with the deepest understanding of what they are deploying, the clearest accountability for its outcomes, and the strongest commitment to the customer’s trust that has always been, and will remain, the true capital of Indian banking.Published on August 11, 2026