Banks must reassess the amount of customer data they collect under the DPDP Rules, while continuing to innovate responsibly with AI, an RBI official said
The FREE-AI committee was constituted by the RBI to encourage the responsible and ethical adoption of AI in the financial sector |
There is a need to revisit the amount of information collected by banks in light of the implementation of India’s Digital Personal Data Protection (DPDP) Rules, 2025, a senior Reserve Bank of India (RBI) official said on Thursday.
“Banks are collecting a lot more information than what they actually need, in some sense, to carry out their activities. With the DPDP Act and rules in place, it is time to revisit what is actually required,” said Suvendu Pati, chief general manager, fintech department, RBI.
Pati was also of the opinion that there is a case for responsible use of artificial intelligence (AI) in the financial services ecosystem, but the sector should not hold back innovation out of fear of a few potential missteps.
He was speaking at a panel discussion at the Indian Banks’ Association in Mumbai.
“Do not stop innovating for fear of a few mistakes that a probabilistic system like AI would have. First, start innovating where you will have an impactful application,” he explained.
Pati added that the government has adopted the guiding principles of the RBI’s FREE-AI Committee report for AI governance across different sectors.
The principles include trust as the foundation, people first, innovation over restraint, fairness and equity, accountability, understandable by design, and safety, resilience and sustainability.
Pati explained that emerging technologies such as AI should enhance trust in the ecosystem.
He also added that AI has the capability to analyse data from alternative sources and build credit models, which can be further used to ensure financial inclusion.
The RBI’s Committee on the Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the financial sector has recommended an approach that treats the objectives of fostering innovation and mitigating risks as complementary forces to be pursued in tandem.
The FREE-AI committee was constituted by the RBI to encourage the responsible and ethical adoption of AI in the financial sector.
It observed that AI has the potential to unlock new forms of customer engagement, enable alternative approaches to credit assessment, improve risk monitoring and fraud detection, and offer new supervisory tools.
However, it cautioned that increased AI adoption could also lead to new risks such as bias and lack of explainability, while amplifying existing challenges related to data protection, cybersecurity and more.
aniltikotekar4sme.com 