New Delhi, August 1: RBI Governor Sanjay Malhotra has asked banks to build meaningful human oversight into artificial intelligence systems and retain accountability for decisions made with AI assistance.
Addressing the annual FIBAC event in Mumbai on Tuesday, Malhotra said banks should use AI to strengthen human judgment rather than simply replace it.
He stressed that banks cannot shift responsibility to an algorithm, technology vendor or AI model when a decision causes harm to customers.
“For a bank’s decision, the ultimate responsibility has to lie with the bank and not with the vendor or with the algorithm,” Malhotra said.
He added that meaningful human oversight must allow officials to understand, intervene in and override AI decisions when necessary.
RBI Calls for Human Oversight in Bank AI Systems
Malhotra said AI should be treated as a capability that banks can responsibly use rather than simply as a risk that needs to be contained.
He explained that AI could help bank employees serve customers more efficiently. For instance, an AI-assisted relationship manager could identify suitable products and highlight risk indicators for customers.
However, the governor warned that excessive dependence on AI could gradually weaken human judgment and accountability within banks.
He also highlighted cybersecurity risks associated with AI systems. Banks must remain alert to potential attacks and vulnerabilities involving artificial intelligence.
Another concern is bias in AI models. Malhotra said algorithms could develop preferences or disadvantages linked to geographies, occupations or communities.
He also warned about “herding” risks if a small number of AI models or technology vendors become dominant across the financial sector. Similar biases could then spread throughout the banking system.
The RBI governor urged banks to strengthen data privacy practices beyond basic legal compliance and carefully assess risks when working with external technology providers.
He also called for AI systems used by banks to be capable of explaining the reasons behind important recommendations and decisions.
Malhotra said the RBI should know which AI models are being used by banks and asked lenders to maintain a complete inventory of their AI models.
He further called for board-approved AI governance policies with clear accountability for outcomes, rather than focusing only on technology procurement.
The governor said banks must maintain meaningful human oversight wherever an AI system error could cause material harm to customers or create risks to financial stability.
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