RBI Official Urges Banks: Trim Data Collection, Drive AI Innovation

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AuthorIshaan Verma|Published at:
RBI Official Urges Banks: Trim Data Collection, Drive AI Innovation
Overview

An senior official from India's central bank, the Reserve Bank of India (RBI), has called for financial institutions to re-evaluate the volume of customer data they collect in light of the new Digital Personal Data Protection (DPDP) Rules. Concurrently, the official encouraged responsible adoption of artificial intelligence (AI) to foster innovation and enhance financial inclusion.

Data Privacy Mandate

Reserve Bank of India (RBI) official Suvendu Pati stated on Thursday that banks must reassess their data collection practices. This directive stems from the implementation of India’s Digital Personal Data Protection (DPDP) Rules, 2025. Pati, chief general manager of the RBI's fintech department, noted that many banks amass more information than is strictly necessary for their operations.

"Banks are collecting a lot more information than what they actually need... it is time to revisit what is actually required," Pati commented during a panel discussion. The DPDP Act and its associated rules provide the framework for this necessary review, signaling a stricter stance on personal data handling within the financial sector.

AI Innovation Push

Pati also advocated for the responsible integration of artificial intelligence (AI) within the financial services ecosystem. He stressed that the sector should not shy away from innovation due to the potential for isolated errors. Instead, financial institutions should focus on impactful AI applications first.

The government has adopted principles from the RBI's FREE-AI Committee report for AI governance. These principles prioritize trust, user-centricity, fairness, accountability, and sustainability. Pati highlighted AI's capability to analyze diverse data sources for credit modeling, thereby boosting financial inclusion and enhancing customer engagement.

Navigating AI Risks

The RBI’s Committee on the Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) has recommended a dual approach: fostering innovation while mitigating risks. While AI offers potential for improved credit assessment, fraud detection, and new supervisory tools, the committee cautioned against risks like algorithmic bias, lack of explainability, and amplification of existing data protection and cybersecurity challenges.

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