Artificial intelligence (AI), if deployed without adequate safeguards in the financial sector, could create new forms of financial exclusion and instability at a speed that regulators and banks may struggle to manage, Reserve Bank of India Governor Sanjay Malhotra said on Tuesday.
Addressing the FIBAC 2026 Conference in Mumbai, Malhotra said India has a significant advantage in adopting AI because of its advanced public digital infrastructure, including Aadhaar, UPI, DigiLocker, ONDC, Account Aggregator and ULI.
He said AI built on top of this digital ecosystem has the potential to transform financial services and accelerate financial inclusion, but stressed that the technology must be deployed responsibly to prevent unintended consequences.
"AI, layered on top of this stack, has the potential to do for financial judgment what UPI did for financial transactions: make it instant, granular, and available to the last mile," Malhotra said.
At the same time, he cautioned that the benefits of AI could be accompanied by significant risks if financial institutions fail to establish appropriate safeguards.
"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.
The RBI Governor pointed out that AI differs from earlier technological revolutions because of its ability to multiply intelligence and extend human decision-making at a scale and speed that cannot be matched by a conventional human workforce.
"I will be unambiguous: the Reserve Bank sees AI as a capability to be responsibly harnessed and not merely as a risk to be contained," he said. Malhotra said Indian banks cannot afford to remain on the sidelines as AI begins to alter the economics of credit delivery. Traditional lending decisions often rely heavily on established financial histories, which can be limited or unavailable in the case of new-to-credit borrowers, gig workers and small businesses that do not maintain formal financial records.
AI-based models, he said, could analyse alternative sources of information, including cash flows, GST filings, utility payments and digital footprints, potentially allowing financial institutions to assess a larger pool of individuals and businesses for formal credit.
He added that AI-enhanced credit risk models, liquidity forecasting and scenario analysis could help banks identify signs of financial stress much earlier than traditional financial statements and conventional monitoring systems.
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Customer service and financial inclusion are other areas where the technology could have a substantial impact. AI-assisted systems could enable relationship managers to serve a larger number of customers, while AI-powered grievance redressal mechanisms and personalised financial guidance could improve the overall customer experience.
For a country as diverse as India, Malhotra said voice-based AI systems operating in Indian languages could play an important role in reducing language barriers and making banking services more accessible. Predictive models could also identify borrowers who may be at risk of default early enough for banks to intervene through counselling and support rather than relying solely on recovery measures.
However, Malhotra stressed that banks must establish robust safeguards as AI adoption expands. The RBI's approach, based on recommendations of the FREE-AI Committee and its draft guidelines on Model Risk Management, follows a principles-based and proportionate regulatory framework.
He said the RBI would continue engaging with the financial industry as AI capabilities and associated risks evolve. Regulation, he added, would be guided by proportionality, consultation, evidence and agility, allowing the framework to respond to emerging developments while ensuring that innovation does not come at the cost of financial stability or inclusion.
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