India Central Bank Head Warns of AI ‘Opacity’ in Finance

The head of India’s central bank is warning about AI use in financial services.

Reserve Bank of India Governor Shaktikanta Das said Monday (Oct. 14) that the increased usage of artificial intelligence (AI) and machine learning in the financial world can trigger stability risks, requiring proper risk mitigation practices by banks.

“The heavy reliance on AI can lead to concentration risks, especially when a small number of technology providers dominate the market,” said Das, whose comments at an event in New Delhi were reported by Reuters.

He added that this could exacerbate systemic risks as failures or disruptions in these systems could spill over into the larger financial sector.

As Reuters notes, financial services companies in India, like their counterparts around the world, are turning to AI to improve customer experience, cut costs, manage risks and fuel growth via things like chatbots and personalized banking.

Das said that the increased use of AI presents new vulnerabilities such as a greater risk of cyberattacks and data breaches. He also warned that AI’s “opacity” makes it tough to examine algorithms which help lenders make decisions and could potentially lead to “unpredictable consequences in the market.”

His comments echo from the U.S. Treasury Department issued earlier this year about the possibility of AI-driven fraud.

A study by the Treasury found a “troubling lack of data sharing on fraud prevention, further disadvantaging smaller financial institutions,” as PYMNTS wrote.

Limited data holds back their ability to build effective AI fraud defenses, while bigger institutions leverage massive data troves for model training.

Narayana Pappu, CEO of Zendata, a data security and privacy compliance solutions firm, told PYMNTS in an interview that the greatest barrier for smaller financial institutions in using AI for fraud detection is not model creation but quality and standardized fraud data, adding that financial institutions can serve as a node to aggregate the data.

This is all happening at a moment when, as PYMNTS wrote last week, AI is reshaping finance. PwC is projecting efficiency gains in banking, FINOS launching an AI governance framework, and Devexperts introducing AI-powered trading to Discord.

“These advancements underscore AI’s influence across financial services, from boosting security and streamlining operations to enhancing user access and tackling governance issues,” that report said.