Why in news?
The Reserve Bank of India released a report titled the “Framework for Responsible and Ethical Enablement of Artificial Intelligence” (FREE‑AI). Prepared by an expert committee headed by linguist and AI researcher Professor Pushpak Bhattacharyya, the report sets out guiding principles and recommendations for adopting artificial intelligence in banking and other financial services without compromising consumer rights and financial stability.
Context and need
Banks and fintech companies are increasingly using algorithms to process loan applications, detect fraud, personalise services and automate compliance. While AI improves efficiency, it can also amplify biases, invade privacy or expose institutions to cyber‑risks if not properly governed. The RBI therefore sought a policy framework that encourages innovation while safeguarding fairness, transparency and accountability.
Key recommendations
- Seven guiding “sutras”: The committee urges institutions to build trust by protecting data; put people first by centring customer welfare; favour innovation with responsibility; ensure fairness and equity in algorithms; assign accountability for decisions; design systems that are understandable to users and regulators; and build in safety and resilience against misuse and cyber‑attacks.
- Shared infrastructure: The report recommends creating a national AI innovation sandbox where start‑ups and banks can test new models on synthetic data without risking real customers.
- Indigenous solutions: It calls for developing Indian language AI models and integrating platforms like Bhashini to avoid dependence on foreign providers.
- Governance and oversight: Boards of financial institutions should approve AI policies, keep records of algorithmic decisions and commission periodic independent audits. Regulators should update consumer protection laws and expand product approval mechanisms to include automated credit assessment.
Challenges highlighted
- Data privacy and bias: Biased training data can lead to discriminatory credit decisions. Institutions must anonymise data and regularly test for fairness.
- Cost and expertise: Smaller banks may lack resources to build secure AI systems. Shared platforms and open‑source tools can reduce costs.
- Cyber‑security: Increasing connectivity makes financial networks vulnerable to hacking. The report stresses robust encryption, secure APIs and incident‑response teams.
Implications
The FREE‑AI framework provides a roadmap for the responsible adoption of artificial intelligence in India’s financial sector. If implemented, it could encourage innovation, improve customer experience and strengthen trust, while mitigating risks such as discrimination and data breaches.