Reserve Bank of India’s Sanjay Malhotra emphasises the need for stronger governance, accountability, and human oversight in the increasing adoption of AI by banks, outlining six key risk areas to watch as digital banking evolves.
Reserve Bank of India Governor Sanjay Malhotra has warned banks that compliance with the Digital Personal Data Protection Act will not, by itself, be enough as the industry expands the use of artificial intelligence. Speaking at the FIBAC 2026 conference in Mumbai on Tuesday, Malhotra said AI should be treated as a capability to be harnessed responsibly rather than simply a danger to be contained, but insisted that stronger governance, accountability and human oversight must come first.
Malhotra set out six broad risk areas that banks must address as they move faster on adoption: explainability, bias and exclusion, concentration and herding, third-party dependence, data privacy and cyber and adversarial vulnerabilities. He said lenders must be able to explain why an AI system made a decision, especially when that decision affects a customer’s access to credit or other services. Auditors, customers and regulators, he suggested, will all expect a clear answer when an application is rejected.
He also cautioned that models trained on historical lending data can reproduce old prejudices, making fairness a design issue rather than a box-ticking exercise. Another concern is systemic concentration, where many banks rely on the same small group of technology vendors or similar models, increasing the risk that a single flaw could affect the wider financial system. Smaller banks may have little choice but to lean on outside suppliers, Malhotra said, but that dependence must be actively managed.
The governor’s comments build on a series of recent warnings about digital risk. In January 2026, he urged banks and other financial firms to work together against fraud by sharing analytics and AI tools to spot mule accounts and suspicious transactions. He has also pushed for technology-led, near real-time supervision of digital banking risks, and in June said the Reserve Bank was prepared for AI-related threats. Earlier in 2024, his predecessor Shaktikanta Das warned that over-reliance on AI could create concentration risks if a handful of firms dominate the market. Malhotra’s latest remarks suggest the central bank wants lenders to innovate, but only with clear guardrails and a firm human hand still in control.
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