Regulator hopes for greater financial inclusion, without extra risk or blaming models for bad decisions
The governor of India’s Reserve Bank wants the nation’s financial institutions to use AI to approve loans that human assessors would likely reject.In a speech delivered yesterday at the FIBAC conference in Mumbai, Sanjay Malhotra said the regulator “sees AI as a capability to be responsibly harnessed and not merely as a risk to be contained,” then offered several reasons to support that statement.The first reason is that banks currently find it hard to justify loans to first-time borrowers, gig workers, or small businesses that don’t keep formal books.
“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,” Malhotra argued. That’s a reference to the fact that India, like many other developing nations, has many people who either lack access to banks entirely or are “underbanked,” meaning they use alternative and/or unregulated lenders that could come with high costs.
“Predictive models can identify borrowers on the cusp of default early enough to counsel rather than merely recover,” he added. “Used well, AI may be the most powerful accelerator to financial inclusion.”One way the tech can make that happen is if Indian banks use AI to develop voice interfaces in local languages. India recognizes 14 major languages that are spoken by ten million or more residents, plus another eight languages felt to be an important part of the nation’s heritage. Literacy rates in rural areas remain below 80 percent. Malhotra therefore thinks AI can help more people to work with banks.
