RBI Report on AI in the Financial Sector

The Reserve Bank of India (RBI) has released a report focusing on the integration of artificial intelligence (AI) within the financial sector. The report aims to guide regulated entities and promote AI-driven innovations, particularly for enhancing financial inclusion among underserved populations.

Key Recommendations

• Regulated entities should develop a board-approved AI policy.
• Regulators are advised to support AI innovations that facilitate financial inclusion.

Framework for Responsible and Ethical Enablement of AI (FREE-AI)

In its December 2024 monetary policy statement, the RBI announced the formation of a committee to develop the FREE-AI framework.

• The committee has introduced seven foundational principles, known as Sutras, for AI adoption.
• A total of 26 actionable recommendations have been made across six strategic pillars.
• The vision is to align innovation with risk mitigation in the financial ecosystem.

Seven Sutras for AI Adoption

• Trust is the foundation that ensures reliability in AI applications.
• People first; prioritises human-centric design.
• Innovation over restraint encourages creative growth.
• Fairness and equity; promote justice and impartiality.
• Accountability demands responsible AI usage.
• Understandable by design; ensures transparency and clarity.
• Safety, resilience, and sustainability; focus on long-term effectiveness and robustness.

Committee and Recommendations

• Recommendation for the RBI to issue a consolidated AI guidance document for regulated entities and the broader fintech ecosystem.
• Suggestion for a permanent, multi-stakeholder AI standing committee under the RBI for ongoing advisory roles.
• Proposal to enhance product approval processes, consumer protection frameworks, and audit mechanisms to include AI-specific considerations.