RBI bats for AI policy backed by boards of regulated entities

Mumbai: A Reserve Bank of India (RBI) report on the use of artificial intelligence (AI) in the financial sector has recommended that regulated entities formulate a board-approved AI policy and advised regulators to promote AI-driven innovation that supports financial inclusion, particularly for underserved and unserved populations.

In its December 2024 monetary policy statement, the RBI had announced the formation of a committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the financial sector.

"The Committee has developed seven Sutras to serve as foundational principles for AI adoption. Guided by these Sutras, the Committee has proposed a forward-looking approach with 26 actionable recommendations across six strategic pillars," the RBI said. "The report envisions a financial ecosystem where innovation and risk mitigation are aligned."

The seven sutras outlined as core principles are: Trust is the foundation; People first; Innovation over restraint; Fairness and equity; Accountability; Understandable by design; and Safety, resilience and sustainability.

The eight-member committee, chaired by Pushpak Bhattacharyya, professor at IIT Bombay, recommended that the RBI issue a consolidated AI guidance document. This would serve as a single point of reference for regulated entities and the broader fintech ecosystem on the responsible design, development and deployment of AI solutions.

The committee also proposed the establishment of a permanent, multi-stakeholder AI standing committee under the RBI to provide ongoing advice on emerging opportunities and risks, and to monitor the evolution of AI technologies.

To address AI-related risks, the report suggested expanding product approval processes, consumer protection frameworks and audit mechanisms to include AI-specific considerations.