AI can do for lending what UPI did for payments: RBI Governor

MUMBAI: Artificial intelligence could transform lending the way UPI revolutionised payments, RBI Governor Sanjay Malhotra said on Tuesday, urging banks to accelerate their adoption of the technology while building robust human oversight into their systems.

Speaking at a banking conference, Malhotra drew a direct parallel between the Unified Payments Interface's overnight success and the potential for AI to overhaul credit disbursal. "AI can do for lending what UPI did for payments," he said, pitching the technology as a force that could democratise access to credit, much like the payments platform did for millions of Indians.

Banks told to pick up pace

Malhotra's comments come amid growing concerns that Indian lenders are moving too slowly on AI integration. The governor's message was unambiguous: banks that understand AI deeply will win, not those that merely adopt it fastest. He urged lenders to look beyond superficial implementation and build AI into the core of their credit decisioning, risk assessment, and customer service operations.

His remarks also carried a warning for laggards. With fintechs and new-age lenders already using machine learning models to underwrite loans, traditional banks risk losing their competitive edge if they do not modernise their lending infrastructure.

Human oversight non-negotiable

While pushing for faster adoption, Malhotra was equally firm on the need for human accountability. "Blaming technology for failures is unacceptable," he said, making it clear that banks cannot hide behind algorithms when things go wrong. He asked lenders to build meaningful human oversight into AI-driven processes, ensuring that final responsibility rests with people, not machines.

The governor's stance reflects a global regulatory tightening around AI in finance. Indian banks are increasingly using AI for everything from fraud detection to loan approvals, but regulators have been wary of opaque, black-box models that could amplify bias or create systemic risks.

SBI chief flags fraud risk

Adding to the urgency, State Bank of India Chairman C.S. Setty warned that fraud can outrun conventional bank systems in the AI era. His caution underscores a larger anxiety in the sector: as AI enables faster and cheaper lending, it also arms fraudsters with sophisticated tools to exploit vulnerabilities in real time.

Setty's comments suggest that the race to adopt AI is not just about efficiency—it is also about defence. Banks that fail to upgrade their fraud-detection mechanisms could find themselves overwhelmed by AI-powered scams that traditional rule-based systems simply cannot catch.

Sector at a crossroads

The twin messages—accelerate adoption, but keep humans in the loop—frame a delicate balancing act for Indian banking. Lenders are under pressure from multiple directions: fintech disruption, changing customer expectations, and an evolving regulatory environment that demands both innovation and prudence.

For now, the RBI's stance appears to be one of cautious encouragement. The governor's speech signals that the central bank is not against AI, but it will hold institutions accountable for how they use it.

What to watch next: whether the RBI issues formal guidelines on AI governance in lending, and how quickly banks translate this push into tangible changes in their credit underwriting and fraud monitoring systems.