RBI Governor Sanjay Malhotra Calls AI “A New Way of Running a Bank” Fl

Sanjay Malhotra urged Indian banks to treat AI as a board-level strategy rather than a technology purchase and outlined seven risks lenders must manage as adoption grows.

Reserve Bank of India (RBI) Governor Sanjay Malhotra has called on banks to treat AI as a board-level priority, warning that slow adopters risk losing control of the shift.

Speaking at FIBAC 2026, organized by FICCI and the Indian Banks’ Association, Malhotra said AI would define this decade the way digitalization shaped the 2000s and liberalization shaped the 1990s.

He said AI could do for financial judgement what UPI did for payments making credit assessment faster, more granular and available at the last mile. Systems built on alternate data such as cash flows, tax filings and utility payments could widen credit access for borrowers without formal financial histories, he said.

Malhotra named customer service, vernacular voice interfaces, operational efficiency and fraud detection as areas where banks could see quick gains, noting that rules-based fraud systems struggle to keep pace with fraudsters.

He listed seven risks banks must manage: the explainability of black-box decisions, bias and exclusion carried over from historical lending data, concentration risk from reliance on a small number of models and vendors, third-party dependencies, data privacy duties, cyber and adversarial vulnerabilities, and weakening human accountability.

“Fairness in AI is not a compliance checkbox. It is a design requirement,” Malhotra said, adding that final responsibility for a bank’s decisions must rest with the bank, not a vendor or an algorithm.

Malhotra asked banks to build a full inventory of AI models in use, adopt a board-approved governance policy focused on outcomes, ensure they can explain decisions materially affecting customers, run red-teaming and stress-tests on AI systems, and maintain human oversight wherever failures could cause material harm.

The RBI will keep a principles-based, proportionate approach that accounts for differences in capability and risk between large banks and smaller lenders using off-the-shelf tools, Malhotra said, adding that the central bank will continue supporting its regulatory sandbox