India’s public sector banks accelerate AI adoption: RBI

The Reserve Bank of India (RBI) has acknowledged an increased mention of artificial intelligence (AI)-related technologies in the annual reports of public sector banks. Earlier, private sector banks were more proactive towards AI.

In its October bulletin, the central bank’s report pointed out that “enthusiasm” towards AI-based technologies at many public-sector banks in India is broadly at par with their private-sector peers, especially in recent years. 

RBI’s research employed text-mining techniques to analyze the annual reports of 32 Indian commercial banks over an eight-year period, from FY 2015-16 to FY 2022-23. The study aimed to identify the adoption and usage of AI and related technologies, as well as track their growth in recent years. Additionally, it examined how the banks’ financial health influenced their adoption of AI, using a fixed effects panel data model.

“In case of public sector banks (PSBs), the emphasis on new age technologies like AI in their annual reports has increased more than 3 times between 2015-16 and 2022-23,” the authors from the Department of Economic and Policy Research, Reserve Bank of India, said in their report. The usage of AI-related keywords in the annual reports of private sector banks increased by approximately six-fold in 2022-23 reports compared to 2015-2016.

RBI’s report suggested that the higher adoption of AI in private sector banks could be attributed to a larger proportion of their clientele being more equipped to access digital services and more comfortable with technology-driven solutions. Additionally, private banks typically serve a more financially savvy and affluent customer base, which presents greater opportunities for leveraging AI-based tools such as customer segmentation, robo-advisory, and robo-wealth management to cross-sell or offer other financial services.

Private sector banks, particularly those with a smaller branch network, are more inclined to adopt AI-based solutions as a cost-effective way to acquire new customers and cross-sell products. In contrast, public-sector banks already have well-established offline channels, especially in rural and semi-urban areas. 

“However, with the rapid advancements in AI, especially generative AI and LLM based models in the last 2 years, which have been accompanied with the public at large being able to access and thus subsequently draw comfort with AI-based solutions, public sector banks also appear to be increasing their usage of AI-based solutions,” the report read.

Bank of Baroda racing ahead 

RBI’s acknowledgment of AI’s adoption among public sector banks comes at a time when Bank of Baroda, one of India’s leading public sector banks, introduced a generative artificial intelligence (AI)-powered virtual relationship manager (VRM) to improve digital customer service experience. A relationship manager provides advice to the bank’s clients on investments and financial services on offer.

Founded on July 20, 1908, the Bank of Baroda is majorly owned by the national government, which holds a 63.97% stake.

A first-of-its-kind initiative in the local banking sector, the VRM would assist customers by providing real-time information on the bank’s products and services while identifying customer requirements for specific banking requirements. It would help customers with basic banking services, including account statements, chequebook requests, debit card requests, and interest certificates.

Recognizing the risks

RBI’s report said that although the integration of AI into the banking and finance sector offers significant opportunities, it also presents challenges such as the possibility of bias, lack of transparency, and issues around the ethical use of data. 

The recent policy initiatives by India, including the National Strategy for Artificial Intelligence, IndiaAI Mission, AI for India 2.0, and Skill India AI Portal, aim to leverage the potential offered by AI and related technologies while acknowledging its risks and challenges. 

RBI’s report also highlighted that India’s financial sector is increasingly turning to AI tools to enhance regulatory compliance. AI solutions can streamline compliance by automating reporting, monitoring transactions for suspicious activities, improving understanding of regulatory requirements, and ensuring adherence to evolving standards. This helps mitigate the risk of regulatory violations, penalties, and fines.

In order for artificial intelligence (AI) to work right within the law and thrive in the face of growing challenges, it needs to integrate an enterprise blockchain system that ensures data input quality and ownership—allowing it to keep data safe while also guaranteeing the immutability of data. Check out CoinGeek’s coverage on this emerging tech to learn more why Enterprise blockchain will be the backbone of AI. 

Watch: India is going to be the frontrunner in digitalization

title=”YouTube video player” frameborder=”0″ allow=”accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share” referrerpolicy=”strict-origin-when-cross-origin” allowfullscreen=””>