RBI governor highlights AI's potential and challenges in financial sector

At the Global Conference on 'Digital Public Infrastructure and Emerging Technologies,' RBI Governor Shaktikanta Das underscored the transformative potential of Artificial Intelligence (AI) in the financial sector, while also cautioning about the challenges it presents.

He emphasized that while AI offers immense benefits for customers, banks, and regulators, it also raises significant concerns, particularly related to data privacy and the risk of misuse.

Governor Das highlighted AI's growing role in financial services, noting its applications in areas such as chatbots, intelligent data processing, fraud risk management, and credit modeling. He pointed out that integrating AI into digital public infrastructure (DPI) could significantly enhance its capabilities and efficiency.

This integration, as outlined in the Report of India's G20 Task Force on DPI, could lead to a new era of 'Digital Public Intelligence,' offering hyper-personalized products and improved services for customers, advanced risk management tools for financial institutions, and enhanced oversight capabilities for regulators.

However, Das stressed that these advancements come with serious challenges. He warned of the data privacy issues that arise from managing vast amounts of personal information and highlighted the importance of ethical AI governance to ensure fairness and prevent bias. He also raised concerns about the potential misuse of AI to spread misinformation, which could disrupt digital public infrastructures and damage the reputation of financial institutions.

Das acknowledged the efforts of international bodies like the Organisation for Economic Cooperation and Development (OECD) in addressing these challenges. He referenced the Hiroshima AI Process Comprehensive Policy Framework, established in December 2023, which outlines guiding principles for the responsible development of AI, including transparency, accountability, and respect for human rights.

The RBI Governor also highlighted India’s leadership role as the chair of the Global Partnership on AI (GPAI) for 2024. This initiative, involving 29 countries, aims to bridge the gap between AI theory and practice by supporting cutting-edge research and developing AI solutions tailored to India's specific challenges.

Das mentioned that India's Ministry of Electronics and Information Technology (MeitY) is playing a key role in these efforts, with initiatives like the AI Research Analytics and Knowledge Dissemination Platform focused on creating indigenous AI-enabled products.

Governor Das emphasized the need for a balanced approach to AI adoption. While it is crucial to leverage AI's capabilities, it is equally important to address the associated risks. He urged financial institutions to clearly define liabilities and adopt AI responsibly, while central banks and governments should focus on fostering trustworthy AI that prioritizes data privacy, explainability, and transparency.