The Reserve Bank of India has constituted a Committee for Responsible and Ethical Use of Artificial Intelligence in Financial Sector, called the “Free-AI” framework. The 8-member Committee is headed by Dr. Pushpak Bhattacharya. The objective of the Committee is to evaluate the current use of AI in financial services, identify potential risks associated with it and propose a comprehensive framework.
Committee on Ethical Use of AI
- The Committee will evaluate the current use of AI in financial services, not only in India but also globally.
- The Committee will review the regulatory and supervisory approach to Artificial Intelligence (AI) in the financial sector, particularly globally.
- The Committee will identify potential risks associated with AI, and recommend an assessment, risk mitigation and monitoring framework for it. It will also suggest compliance requirements for financial institutions such as banks, NBFCs, FinTechs, PSOs, etc.
- The committee will also recommend a framework on governance aspects for responsible and ethical use of AI models/applications in the Indian financial sector.
- The committee will submit its report within six months of the first meeting.
Benefits of AI in Financial Services
Operational Efficiency
- AI can automate time-sensitive and repetitive tasks, allowing financial institutions to process large amounts of data faster and more accurately.
- Example: Loan application process.
Better Decision Making
- AI makes financial decisions more accurate through predictive analytics, which predict market trends. Example: Algorithm-based trading.
- Customer Relationship: Financial institutions can interact better with customers using 24/7 AI-powered chatbots and virtual assistants.
- Improved risk management: Unlike traditional fraud identification, AI helps prevent fraud beforehand.
Use of AI in Indian Financial Sector
Role of AI in RBI Report
- In its October report, the Reserve Bank of India (RBI) has recognised the revolutionary potential of AI.
- AI is seen as a tool to simplify processes, reduce errors and improve customer experience.
- AI-powered solutions can improve risk assessment, fraud identification and better customer service.
- These innovations can make banking services accessible to a wider population.
Challenges and Concerns
- RBI has raised the risk of bias in AI algorithms, which can lead to discriminatory outcomes.
- Data privacy and security issues must be addressed to ensure responsible use of AI.
Private vs Public Sector Banks
- Private sector banks have been more proactive in adopting AI solutions and are pushing digital innovation.
- They are using AI for customer segmentation, robo-advisors and personalized financial advice.
- Public sector banks are also now recognising the potential of AI.
- As AI evolves, banks will have to maintain a balance between innovation and responsible use.