“The report envisions a financial ecosystem where encouraging innovation is in harmony, and not at odds, with mitigation of risk,” the RBI said in a statement
MUMBAI: An RBI panel has recommended that banks and other financial institutions formulate a policy to mitigate risks arising from use of Artificial Intelligence (AI) in the financial sector, saying without guardrails it can exacerbate risks.
The Reserve Bank of India (RBI) had set up the committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the financial sector in December last year.
In its report, published by the RBI on Wednesday, the panel sets out a framework to guide the use of AI in the financial sector, aiming to harness its potential while safeguarding against associated risks.
“The challenge with regulating AI is in striking the right balance, making sure that society stands to gain from what this technology has to offer, while mitigating its risks,” according to the report.
“If used without guardrails, it can exacerbate the existing risks and introduce new forms of harm,” it said.
The committee has developed seven Sutras to serve as the foundational principles for AI adoption. Guided by the Sutras, the committee has recommended a forward-looking approach, containing 26 actionable recommendations under six strategic pillars.
The report envisions a financial ecosystem where encouraging innovation is in harmony, and not at odds, with mitigation of risk.
“For an emerging economy like India, AI presents new ways to address developmental challenges,” the report said.
Multi-modal, multi-lingual AI can enable the delivery of financial services to millions who have been excluded. When used right, AI offers tremendous benefits.
The committee has recommended setting up a digital infrastructure to help build indigenous AI models and a multi-stakeholder standing committee to evaluate risks and opportunities.
It also suggested building a fund to incentivise the development of homegrown AI models tailored for the needs of India’s financial services sector.
“The report envisions a financial ecosystem where encouraging innovation is in harmony, and not at odds, with mitigation of risk,” the RBI said in a statement.
The committee formulated 7 Sutras that represent the core principles to guide AI adoption in the financial sector. These are: Trust is the Foundation, People First, Innovation over Restraint,Fairness and Equity,Accountability, Understandable by Design, Safety, Resilience and Sustainability.
The report contains 26 recommendations under six categories including infrastructure, capacity, policy, governance, protection and assurance.
Other key recommendations by the eight-member committee headed by Pushpak Bhattacharyya, a computer scientist at IIT Bombay, include issuing of an enabling framework to integrate AI with existing digital public platforms such as instant payment system UPI, and designing audit frameworks.