AI adoption essential for banking, but human judgement remains key: RBI Deputy Guv

Reserve Bank of India's Deputy Governor Shirish Chandra Murmu highlighted the significance of artificial intelligence (AI) in the banking sector while stressing the necessity of human intervention in its implementation and detection of potential flaws. During an event in Mumbai, Murmu said that AI's role is to identify when institutional capability or risk appetite falls short of evolving needs and when weaknesses, individually manageable, combine into a larger issue.

He emphasized that AI models can still fail small groups that are already vulnerable, underscoring the importance of human judgment in decision-making. Murmu stressed that intelligence should encompass various components, including analytical, human, governance, and collective intelligence, with AI pooling information across banks.

He advocated for banks to leverage AI and technology to reach and understand new borrowers, ensuring that the absence of information is not mistaken for adverse information. Murmu also addressed the potential risks of AI concentration, noting that it could lead to digital fraud spreading across accounts and institutions. The RBI's MuleHunter.ai and Digital Payments Intelligence Platform aim to address this challenge by aggregating dispersed signals through AI for earlier detection and coordinated response.

Additionally, Murmu emphasized AI's role in identifying and addressing emerging weaknesses related to fraud, conduct, operations, and cyber risk in banking. He highlighted that AI productivity should not merely focus on output per employee or cost-to-income ratio but should include whether the institution reaches previously unreachable borrowers, resolves pending grievances, and accurately prices risk.

Murmu cautioned that merely compressing costs without expanding reach or enhancing customer experience would result in automation of the existing system rather than improvement.