The Reserve Bank of India has released a draft circular proposing a comprehensive risk management framework for AI and machine learning models used by banks, enforcing absolute accountability for third-party systems.
June 25, 2026 01:39 IST
The Reserve Bank of India (RBI) on Wednesday proposed a new framework for the use of artificial intelligence as its adoption by domestic banks expand significantly.
In a draft circular, the RBI urged banks to put in place proper governance, risk management, and controls, along with continuous oversight. Under the new framework, the regulator proposed broad principles to manage risks from third-party models. The regulator has sought stakeholder feedback by July 24.
“Considering model usage has expanded significantly and regulated entities are increasingly using models, including those employing artificial intelligence / machine learning, across various business and decision-making processes; weaknesses in their governance, oversight, risk management and controls may expose the regulated entities to financial, operational, compliance, and reputational risks,” the regulator said in a draft circular.
Although these models help banks operate more efficiently, the RBI warned about the risks that come with them. “If not managed effectively, such risks may lead to inaccurate outcomes, flawed decisions, financial losses, operational disruptions, compliance failures and other adverse consequences for entities, consumers and the financial system.”
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The RBI further said that banks should establish a board-approved risk management framework for all models, including AI/ML, whether developed in-house or obtained from third parties. The board should oversee its implementation, it said.
Entities are also responsible for assessing model risk at both individual and enterprise-wide level, on a regular basis. If the assessed risk exceeds the bank’s appetite, it should take prompt action, the RBI said.
In the case of using third-party models, the central bank said banks will remain responsible for the outcomes. The regulator urged banks to follow proper due diligence before the use of any third-party models.
Moreover, banks should ensure that deploying AI models does not introduce vulnerabilities into the model.
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This article was first uploaded on June twenty-five, twenty twenty-six, at thirty-nine minutes past one in the night.
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