In a thought-provoking address on the growing role of artificial intelligence (AI) in the financial sector, Reserve Bank of India (RBI) deputy governor Swaminathan J underscored that while AI has the potential to transform finance, it must not come at the cost of trust, fairness and accountability. While speaking at the V Narayanan Memorial Lecture at SASTRA University, he cautioned that technological advancement should remain anchored in human judgement and ethical responsibility.
Highlighting the rapid adoption of AI across financial services, Mr Swaminathan noted that the technology is already reshaping customer service, credit assessment, fraud detection and regulatory supervision. AI-driven tools, he says, can simplify customer interactions, improve access for underserved segments and enhance risk monitoring by identifying unusual patterns in vast datasets.
He pointed out that AI could play a crucial role in expanding financial inclusion, especially in a diverse country like India, where traditional credit assessment methods often fail to capture the realities of small businesses and first-time borrowers. By analysing alternative data such as transaction behaviour and cash flows, AI can help identify creditworthy individuals who might otherwise remain excluded from formal finance.
However, the RBI deputy governor warned that AI is a double-edged sword. If deployed without adequate safeguards, it can amplify existing biases, compromise data privacy and create systemic risks. He flagged concerns about algorithmic bias, a lack of transparency in decision-making, the misuse of sensitive financial data, model risks, and rising cyber threats.
“Finance cannot become a black box,” he said, stressing that institutions must be able to explain decisions that impact customers, such as loan rejections or account restrictions. Accountability, he emphasised, cannot be outsourced to machines.
Mr Swaminathan outlined five guiding principles for responsible AI adoption in finance. These include maintaining human accountability, ensuring fairness and explainability, strengthening data governance, building institutional capacity and prioritising inclusion. He emphasised that AI systems must be designed with these principles at their core rather than treating them as afterthoughts.
He also proposed three key tests to evaluate AI's role in India’s financial system: whether it advances inclusion, improves efficiency and strengthens trust. Technologies that fail to meet these benchmarks, he said, should not be pursued merely for their sophistication.
Drawing lessons from the legacy of veteran banker Narayanan, the RBI deputy governor highlighted the importance of balancing technological progress with human touch. He noted that while Mr Narayanan embraced innovation early, he never allowed banking to lose its personal and relationship-driven character a lesson that remains relevant in the AI era.
He concluded by stressing that the future of finance must be “more intelligent, but not less human”. AI, he says, should serve as a tool to enhance inclusion, transparency and trust, not undermine them.
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