Financial sector in India to potentially adopt AI-based system, according to recommendations by the central bank's committee.
The Reserve Bank of India (RBI) has released a comprehensive report outlining a framework for the responsible and ethical enablement of Artificial Intelligence (AI) in the country's financial sector. The framework, dubbed the Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREEAI), aims to strike a balance between gaining from AI while mitigating its risks.
The report, headed by Pushpak Bhattacharyya, a computer scientist at IIT Bombay, is structured around seven core principles, or "7 Sutras", and 26 actionable recommendations grouped under six strategic pillars. These pillars focus on balancing innovation with risk mitigation to foster ethical and trustworthy AI adoption.
The seven guiding principles, or "7 Sutras", are:
- Trust as the foundation
- People-first design
- Innovation over restraint
- Fairness and equity
- Accountability
- Understandable by design (explainability)
- Safety, resilience, and sustainability
The six strategic pillars and key recommendations are:
Infrastructure - Building high-quality financial sector data infrastructure as a digital public good - Establishing indigenous financial AI models - Creating shared AI infrastructure
Policy - Developing adaptive and enabling AI policies - Adopting AI liability frameworks - Ensuring regulatory alignment
Capacity - Developing AI-related capacity and governance competencies for boards and executives - Training regulators and supervisors to oversee AI usage
Governance - Mandating board-approved AI policies within regulated entities - Instituting robust governance frameworks to manage AI risks
Protection - Enhancing consumer protection mechanisms specific to AI adoption - Implementing strong cybersecurity measures
Assurance - Establishing an AI innovation sandbox for experimentation and validation - Strengthening oversight for safety and ethical assurance
The framework promotes a vision of inclusive, transparent, and secure AI adoption that improves customer experience, operational efficiency, financial inclusion, and systemic stability without compromising trust or ethics. The RBI highlights the transformative potential of generative AI in banking, emphasizing sharper customer insights, enhanced risk management, and cost optimization as benefits for the sector.
The committee's report also emphasizes the need for an enabling framework for AI integration with digital platforms like UPI (instant payment system) and the design of new audit frameworks. However, it does not specify whether the 'vostro' accounts mentioned earlier are included in the recommendation to invest entire surplus in government securities.
The report envisions a financial ecosystem where innovation and risk mitigation are in harmony, paving the way for a more efficient and ethical financial sector.
- The framework, FREEAI, developed for the financial sector by the Reserve Bank of India (RBI), aims to foster ethical and trustworthy AI adoption, particularly in areas like risk management and consumer protection, as outlined in the report headed by Pushpak Bhattacharyya.
- As part of the RBI's strategy for responsible AI integration, the framework emphasizes the need for an enabling system for AI to work seamlessly with digital platforms such as UPI, while also proposing the design of new audit frameworks.
- In its vision for a future financial ecosystem, the report highlights the potential of generative AI in banking, pointing to benefits like cost optimization, sharper customer insights, and enhanced risk management, all while maintaining a harmonious balance between innovation and risk mitigation.
