AI in Indian banking: RBI Governor, SBI Chairman highlight credit, risk and cybersecurity

New Delhi: Artificial intelligence is set to play a bigger role in India’s banking sector, with the focus shifting beyond retail customers to farmers and small businesses. State Bank of India Chairman CS Setty believes that AI could play a pivotal role in enhancing risk management, making more informed decisions at the farm level, and increasing credit access in India’s drive towards a developed nation by 2047.

At a FICCI-IBA event, Setty said that banks have already begun to leverage AI to understand their customers, enhance services, and streamline lending and risk assessments. But the bulk of the adoption of this approach has been in retail banking, due to the volume of data available in retail, reported by Economics Times.

AI can improve credit access for farmers, MSMEs

Setty said the next phase of AI-led banking should reach rural India, small businesses and customers who may not have conventional credit histories. “AI can play a role in making better farm-level decisions, using digital records, AI-based risk assessment and satellites to enhance access to credit and risk management in banks,” Setty added.

There are already a couple of farm lending processes that are based on AI, he said. The more difficult part is scaling up these solutions to be affordable and viable at the last mile.

AI can enable banks to make credit decisions based on more data for MSMEs. It may help make it easier for companies without long credit records to access formal credit facilities.

RBI Governor calls for a change in banking mindset

The RBI Governor, Shri Sanjay Malhotra, emphasised the increasing influence of AI in banking during the FIBAC 2026 conference. He added that banks should not rush into the leap of getting AI on the market but must know what AI is and be held responsible for what it creates.

“It’s a mindset change that needs to happen in doing business and doing banking,” Malhotra said. He cited the shifts in risk assessment, customer service, capital pricing and organisation of financial institutions.

Malhotra also said India has a strong foundation for AI adoption because of its digital public infrastructure. He mentioned platforms and systems like Aadhaar, UPI, DigiLocker, ONDC, Account Aggregator, and Unified Lending Interface.

The RBI Governor noted that these public digital systems can form the basis of private sector AI applications. He said AI has the potential to transform financial judgement in much the same way UPI transformed financial transactions.

AI adoption also brings cybersecurity risks

While broader use of AI could be beneficial for banks, it could also present new dangers, Setty cautioned. New and improved technology would provide fraudsters with even more advanced tools, and financial fraud may outpace traditional security measures.

As a result, banks need to enhance their cyber defence capabilities and risk management frameworks while increasing their reliance on AI. Setty also emphasised the need for trust in AI systems as they grow increasingly independent. He stated that the banks should be more vigilant in their oversight, model risk, transparency, and accountability when implementing autonomous AI systems.

Banks face a new AI-led transformation

The challenge for the banks is not if they use AI, but how, Malhotra said. He said institutions that succeed will not necessarily be those that deploy AI the fastest but those that understand the technology and maintain clear responsibility for its outcomes.

The RBI Governor also added that banks are progressing well to implement relevant Basel III norms from the start of the next financial year as per the existing glide path. The central bank has also completed guidelines on credit risk capital, expected credit loss, project finance, related party transactions and dividend policy.

The comments by Setty and Malhotra herald a larger change in the Indian banking sector. AI is gradually transitioning from customer service and retail to lending, rural finance, risk management and financial decision-making, and banks are increasingly under pressure to innovate while maintaining trust and security.