The Reserve Bank of India (RBI) has proposed new guidelines for banks and other regulated entities to manage risks associated with artificial intelligence (AI) systems. The draft framework mandates that regulated entities assess risk at both the individual model level and across the enterprise on an ongoing basis.
Scope of the Guidelines
The guidelines apply to all banks, non-banking financial companies (NBFCs), and other institutions regulated by the RBI. They cover AI models used in credit underwriting, fraud detection, customer service, and other critical functions. The RBI emphasized that entities must ensure transparency, accountability, and fairness in AI decision-making.
Key Requirements
Under the proposed framework, regulated entities must establish a governance structure for AI risk management, including board-level oversight. They are required to document model development, validation, and monitoring processes. Additionally, entities must conduct periodic stress testing and scenario analysis to evaluate potential risks.
According to the RBI, “Regulated entities must assess risk at both the individual model level and across the enterprise on an ongoing basis.” This includes evaluating data quality, model bias, and compliance with regulatory standards.
Impact on Banks
The guidelines are expected to increase compliance costs for banks but also enhance the robustness of AI systems. Banks will need to invest in specialized talent and technology to meet the requirements. The RBI has invited public comments on the draft until August 2026.
Conclusion
The RBI’s move aims to mitigate risks from AI adoption while promoting innovation. The final guidelines will be issued after considering stakeholder feedback.
