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The Gaps In RBI’s “Build It All, But Responsibly” Vision For AI In Fintech

9 0
22.08.2025

Like the computer revolution, which brought sweeping changes to the Indian banking industry, AI threatens to rewrite the rules of banking and finance. But the risk in AI-led transformation of fintech and banking is much greater than any tech adoption in the past.

Artificial intelligence (AI) is on everyone’s minds across sectors these days, but the Reserve Bank of India’s (RBI) report on Framework for Responsible and Ethical Enablement of AI (FREE-AI) has turned the spotlight on AI in India’s fintech and banking ecosystem

In its 103-page report, the RBI urged India’s financial sector to focus on building a strong AI infrastructure, including indigenous financial sector-specific AI models, to responsibly embrace developments in the realm of AI.

“Whenever new technology comes in, jobs are seen as the first victim. The same kind of concerns were raised when computers were introduced in the banking system around 1984,” said Rishi Agrawal, cofounder and CEO of TeamLease Regtech that assists companies adhere to regulatory compliance.

Like others in the banking and financial services industry, Agrawal also believes that upskilling is the need of the hour as the nature of jobs are going to change, and that the impact of AI needs to be addressed by all stakeholders and regulators. “Rather than constantly feeling threatened that existing jobs are at stake, we have to evolve, become more efficient, effective, and move in line with the way the world is morphing to adopt AI.”

And that’s the spirit behind the RBI report, which encourages companies to expand their horizons when it comes to AI but with certain caveats. Interestingly, the RBI does not mandate the use of sovereign AI models, but is looking to enable all AI innovation but within a responsible and ethical AI framework.

So amid the debate on whether India should build sovereign AI and foundational models, or if it should only focus on applications and smaller language models, the regulator’s opinion is clear — build it all, but responsibly.

The RBI’s AI Vision

The RBI committee has called for building foundational large language models (LLMs) that can accurately represent the “linguistically and operationally diverse” BFSI ecosystem. At the same time, the committee has also emphasised the need for building small language models specific to tasks, BFSI domains, as well as those designed around a single use case or a narrow set of tasks, and for fine-tuning existing open-weight models.

The RBI report is important for large financial institutions, which have already progressed in their AI journey despite having massive legacy processes in place. “We need a balance here: the scope of AI adoption shouldn’t be highly regulated, nor so loose that people misuse it. And everybody is evolving, so the regulatory draft circular gives us the ability to go back and engage with them, point out the issues and then evolve,” said SBI Mutual Fund digital technology and strategy head RS Srinivas........

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