The Reserve Bank of India (RBI) has taken a significant step toward ensuring the responsible and ethical use of Artificial Intelligence (AI) in the country’s financial sector. An advisory committee constituted by the RBI has recommended a structured governance model called the Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI). The framework aims to balance innovation with risk management while supporting the development of indigenous AI solutions tailored to India’s financial ecosystem.

The committee, which includes leading experts in technology and finance, has outlined 26 recommendations under six key areas: infrastructure, capacity, policy, governance, protection, and assurance. These recommendations are designed to provide a comprehensive approach for financial institutions and fintech companies to adopt AI technologies responsibly, ensuring transparency, accountability, and ethical alignment.

A critical focus of the FREE-AI framework is the establishment of robust digital infrastructure to facilitate the creation and deployment of homegrown AI models. By promoting locally developed AI solutions, the RBI seeks to reduce dependence on external technologies while ensuring compliance with domestic regulations and standards. The infrastructure is also intended to support AI applications that can enhance operational efficiency, improve customer service, and reduce financial risks.

The committee has also proposed setting up a multi-stakeholder standing committee that would continuously monitor and evaluate AI adoption across the financial sector. This body would play a key role in assessing emerging risks, providing guidance on ethical implementation, and ensuring that AI systems maintain high standards of accountability.

To encourage innovation, the report suggests the creation of a dedicated fund to support the development of indigenous AI technologies. Financial incentives and targeted investments are expected to drive research, experimentation, and scaling of AI applications in areas such as payments, credit risk management, fraud detection, and customer analytics.

Integration with existing digital public platforms, such as the Unified Payments Interface (UPI), is another recommendation highlighted in the framework. By leveraging current infrastructure, AI can be deployed in a manner that enhances interoperability, streamlines transactions, and improves the overall efficiency of financial services.

The committee emphasizes the need for establishing audit mechanisms to monitor AI systems’ performance, reliability, and fairness. These audits would ensure that AI technologies operate without bias, maintain public trust, and adhere to the ethical and legal standards set by regulators.

The FREE-AI framework reflects the RBI’s proactive approach to AI governance, aiming to create a safe, ethical, and innovation-friendly environment in the financial sector. It underscores the importance of aligning technological progress with ethical oversight, thereby positioning India as a leader in responsible AI adoption within finance.

As financial institutions increasingly integrate AI into their operations, the recommendations laid out by the RBI committee are expected to provide clear guidance for mitigating risks while maximizing the benefits of AI-driven transformation. The framework represents a forward-looking strategy for nurturing innovation, protecting consumers, and ensuring that AI technologies contribute positively to India’s financial ecosystem.