India central bank head says AI can approve loans humans would have turned down, says the technology is, 'a capability to be responsibly harnessed and not merely as a risk to be contained'
India's central bank wants AI deciding who can get a loan, as long as no bank ever tells a customer "the model decided.
RBI Governor Sanjay Malhotra has advised Indian banks to integrate artificial intelligence (AI) into their lending practices, arguing that advanced algorithms can evaluate credit applications more effectively than traditional human underwriters. Malhotra highlighted that AI can process alternative data sources, such as cash flows, GST filings, and utility payments, which are often overlooked by conventional credit assessment methods.
By harnessing these unconventional data points, banks could potentially extend credit to borrowers who would otherwise be denied due to a lack of formal financial history.
However, the RBI governor emphasized the importance of responsible AI deployment, cautioning that banks must implement stringent safety measures and maintain human oversight. This includes conducting thorough risk assessments, regularly auditing AI systems, and ensuring that borrowers understand the basis for lending and fraud decisions.
Malhotra stressed that while AI can identify potential defaulters early, it should serve as a tool to assist and not replace human loan officers. He noted that AI-driven models often operate as "black boxes," meaning their decision-making processes are opaque, which could exacerbate algorithmic bias.
To mitigate these risks, RBI officials argued that human accountability remains crucial, particularly when AI-driven decisions result in adverse outcomes. Malhotra warned against a "complete hands-off approach" that could lead to unchecked AI adoption. Instead, he advocated for institutions that understand their AI implementations, can explain their outcomes, and maintain trust with their customers.
He likened this approach to the enduring capital of Indian banking, highlighting that the true winners in the AI era will be those who effectively manage their adoption and retain customer confidence.
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