RBI Unveils Draft Framework for Managing AI Risks in Banking

The Reserve Bank of India (RBI) has released draft guidelines aimed at strengthening how banks manage risks associated with artificial intelligence (AI) and machine-learning models.

Under the proposal, banks would be required to adopt a board-approved risk management framework covering all models used across their operations, including AI-driven and machine-learning systems. The framework would require institutions to continuously evaluate risks at both the individual model level and across the organization.

If a model is found to pose excessive risk, banks would need to take appropriate corrective measures. These could include introducing stronger controls, limiting the model’s use, carrying out remediation efforts, or retiring the model altogether. Such cases would also need to be reported to the board’s risk management committee.

The draft guidelines further state that all models, including those sourced from third-party providers, should undergo independent validation. Banks would also be expected to maintain oversight of AI systems involved in automated decision-making processes.

For generative AI tools that interact with customers or external users, the RBI has proposed additional cybersecurity safeguards to address potential risks.