MUMBAI: Reserve Bank of India (RBI) Governor Sanjay Malhotra has articulated a bold vision for the future of financial services, declaring that Artificial Intelligence (AI) holds the potential to transform lending decisions with the same disruptive force that the Unified Payments Interface (UPI) brought to digital payments. Speaking at FIBAC 2026, Malhotra urged banks to proactively embrace this technological wave, emphasizing India’s unique position to adopt AI, bolstered by its robust public digital infrastructure and forward-thinking regulatory environment.

His remarks come at a crucial juncture when India’s credit-to-GDP ratio remains modest, despite the banking sector currently enjoying one of its healthiest periods. The Governor highlighted that the RBI is actively building foundational layers to facilitate this transition, including the forthcoming Digital Payments Intelligence Platform. This platform, he explained, will enhance India’s existing digital public goods such as Aadhaar, UPI, DigiLocker, ONDC (Open Network for Digital Commerce), the Unified Lending Interface, and the Account Aggregator framework. These integrated systems are designed to provide banks with a stronger bedrock for deploying AI across a spectrum of lending and other financial services.

“We in India stand at a unique vantage point to leverage AI. We have the most advanced public digital infrastructure, whether it is Aadhaar, the UPI, DigiLocker, ONDC, we are trying to build and improve and expand the Unified Lending Interface, the Account Aggregator,” Malhotra stated, underscoring the nation’s strategic advantage.

Malhotra further cited a Boston Consulting Group (BCG) report, suggesting that AI could significantly improve the efficiency of the banking sector by helping to reduce the operational cost-to-income ratio, which currently stands at 47-49%. This operational efficiency, coupled with AI’s potential to expand the borrower base, paints a promising picture for financial inclusion.

A key aspect of AI’s transformative power in lending, according to Governor Malhotra, lies in its ability to transcend conventional financial histories. By leveraging AI models on alternative data sources – such as cash flows, Goods and Services Tax (GST) filings, utility payment bills, and digital platform activities – banks can significantly extend the frontier of “bankable India.”

This approach is particularly pertinent for segments of the population that have traditionally struggled to access formal credit. “Traditional underwriting relies on financial history, precisely the data that is thin or absent for new-to-credit borrowers, for the gig workers, or those underserved sections of our society because they do not have formal books,” Malhotra explained. AI, by analyzing these diverse data points, can provide a more comprehensive risk assessment, thereby enabling financial institutions to offer credit to individuals and businesses previously excluded due to lack of a traditional credit footprint.

However, the Governor also sounded a note of caution. While enthusiastic about AI’s potential, he firmly stressed that the explainability of AI-driven decisions and human accountability are non-negotiable prerequisites. This emphasis ensures that as AI becomes more integrated into critical financial processes, transparency and human oversight remain paramount, safeguarding consumer interests and maintaining trust in the financial system.