Supporting regulatory framework needed to harness benefits of AI: RBI Deputy Governor

Mumbai: Reserve Bank of India Deputy Governor M Rajeshwar Rao has made a case for a supportive regulatory framework to harness benefits of Artificial Intelligence (AI) while remaining mindful of its potential adverse impacts on the financial system.

Speaking at the 106th Annual Conference of Indian Economic Association in Delhi on December 22, Rao said the emergence of Artificial Intelligence, or AI, is also being cited as being in the same league and proponents of AI sound convinced that it is going to transform the future.

In the financial sector, he said, “We are seeing several banks and non-banks experimenting with AI. Global experience, so far, however, suggests that such deployment is mostly limited to back-office work and optimisation of business processes to deliver efficiency gains.”

Some of the banks have also deployed AI solution to manage compliance requirements, which are routine, for identification of patterns in transactions or payments to detect money laundering attempts or for facilitating cross-border transactions and settlements, he said.

Some entities have also reported to deploy AI solutions in customer facing processes such as for making lending decisions or identification of target customer segments, he said.

Given its transformative nature and potential, he said, if realised, generative AI could have a deep impact, on productivity, jobs, and income distribution.

The advocates of AI expect widespread benefits for the economy and society, including increase in income levels, automation of repetitive tasks, and obtaining better insights by combining different sets of information and data that may be otherwise difficult for human processing,

he said.

There are others who are more sceptical and point to several societal consequences, including increased unemployment, he said.

They also point out that if the long-term benefits are largely benign, the reallocation of resources and labour in the transition could be challenging, he said.

“We have also seen these concerns being expressed in India with reference to the IT sector, but the debate is ongoing and is unlikely to be settled in near future,” he said.

Observing that there are only a handful of entities globally that have a large amount of data available to train GenAI models, he said this could give rise to the questions of market power, competition and cross-jurisdictional issues.

As banking sector evolves, he said emerging technologies and AI will play a significant role in the process.