Financial sector executives affirm that the recently released AI guidelines by the Reserve Bank of India aim to decrease costs and risks.
The Reserve Bank of India (RBI) has unveiled its Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI), a comprehensive initiative aimed at promoting ethical AI adoption in the Indian financial sector. The framework, announced on August 13, is built around seven guiding principles, or 'sutras', which are operationalized through twenty-six targeted recommendations.
The RBI's endeavor includes measures such as AI sandboxes, sectoral datasets, and indigenous models. The framework aims to ensure safe, fair, accountable, and inclusive AI adoption in financial institutions, balancing innovation with risk management.
The principles guiding the FREE-AI framework are Trust is the foundation, People first, Innovation over restraint, Fairness and equity, Accountability, Understandable by design, and Safety, resilience and sustainability. These principles aim to ensure that AI benefits consumers, financial institutions, and the economy equitably while mitigating bias, opacity, and systemic risks.
The recommendations are structured under six strategic pillars: Governance, Data, Fairness, Transparency, Accountability, and Risk Management. Key features include building indigenous AI models, establishing a multi-stakeholder standing committee, creating a dedicated fund for incentivizing the development of homegrown AI solutions, and mandating rigorous governance measures for banks, vendors, and fintech partners providing AI solutions.
The framework also emphasizes expanding financial inclusion through alternative credit scoring, integrating AI with existing digital platforms, and democratizing AI usage in the financial sector by ensuring access to AI-enabled technology for smaller and mid-sized institutions.
Dewang Neralla, CEO of HiWiPay, welcomed the initiative, stating that it opens doors for smaller players in ways not seen before. Shikhar Aggarwal, Chairman of BLS E-Services Ltd, cautioned that foundational barriers such as gaps in financial literacy and digital infrastructure could limit the short-term impact of the framework.
The FREE-AI framework's 'Innovation over restraint' principle encourages innovating boldly but with built-in responsibility. The framework includes a concept of graded liability to encourage experimentation while ensuring responsibility. These measures are designed to reduce the cost and risk of experimentation for financial services companies.
Generative AI is highlighted as transformative, capable of delivering sharper customer insights, improving risk management, controlling costs, and personalizing services at scale, thus advancing both operational effectiveness and consumer experience within the financial sector.
In summary, the RBI's FREE-AI framework lays a detailed, principle-driven and pragmatic roadmap focused on responsible AI innovation, risk mitigation, and inclusive growth to enable ethical and democratized AI adoption across India’s financial ecosystem. The framework could unlock entirely new categories of financial products and pave the way for the next generation of AI-powered financial services in India.
The RBI's FREE-AI framework encourages the financial industry to leverage artificial-intelligence technology, with a focus on generating innovative financial products (innovation over restraint). This framework also prioritizes the use of indigenous AI models and AI sandboxes to reduce the cost and risk of experimentation in the sector (graded liability).
By emphasizing fairness, accountability, and safety within AI adoption, the framework aims to ensure equitable benefits for consumers, financial institutions, and the economy while addressing issues such as bias, opacity, and systemic risks (safety, resilience, and sustainability, fairness and equity). This approach could potentially revolutionize the Indian finance sector, transforming processes like credit scoring and risk management through generative AI (generative AI is highlighted as transformative).
