Main risk of AI is erosion of human judgment: RBI Governor
RBI Governor Sanjay Malhotra has warned that the deployment of AI in the banking sector risks eroding human judgment and accountability. He urged banks to establish board-approved governance policies, maintain AI inventories, and ensure meaningful human oversight to prevent material harm to customers.
Why it matters
As financial institutions increasingly rely on AI for lending and fraud detection, this guidance sets a critical regulatory framework for maintaining institutional accountability and financial stability.
The biggest risk of deploying Artificial Intelligence (AI) in banks is the erosion of human judgment and accountability, Reserve Bank of India (RBI) Governor Sanjay Malhotra said on Tuesday.
“No matter how sophisticated the [AI] model, the responsibility for a bank’s decisions rests with the bank, not with its algorithm. “The model decided” can never be an acceptable answer to a customer, an auditor, or the Reserve Bank,” he cautioned.
“Meaningful human oversight – the ability to explain, to intervene, and, where necessary, to override – must remain a design principle, not an afterthought,” Mr. Malhotra said while delivering the inaugural address at the FIBAC 2026 Conference, Mumbai on the theme “Winning in the AI Era: The New Playbook for Indian Banks”.
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