AI and Automation Transforming Indian Banking
India’s banking sector is undergoing a significant transformation as financial institutions increasingly adopt artificial intelligence (AI), automation, and advanced analytics to enhance customer service and optimize credit decision-making. This technological shift is not only improving operational efficiency but also fostering greater financial inclusion and risk management.
Leading banks such as HDFC Bank, Axis Bank, and State Bank of India (SBI) are at the forefront of this digital evolution. HDFC Bank’s AI-powered chatbot, Eva, efficiently manages and responds to millions of customer inquiries, streamlining customer service operations. Similarly, Axis Bank’s innovation hub, Thought Factory, focuses on integrating AI solutions to drive fintech advancements. SBI, India’s largest public sector bank, is leveraging AI to enhance credit risk assessments and improve customer experiences.
The adoption of AI and automation is particularly impactful in credit underwriting. Traditional lending processes often rely on limited data and manual evaluations, which can exclude underserved populations. AI and machine learning models enable banks to analyze a broader range of data, including alternative sources such as UPI transactions and utility payments, to assess creditworthiness more inclusively. This approach allows for faster and more accurate lending decisions, reducing the reliance on traditional credit scores.
Fintech companies like Perfios and Accumn are also contributing to this transformation. Perfios has partnered with NeSL (National E-Governance Services Ltd) to utilize AI and smart data tools for early detection of borrower repayment stress. This collaboration aims to support banks in making safer and faster lending decisions, thereby reducing default risks and improving credit access. Accumn’s AI-powered underwriting platform processes large amounts of information in real time, drawing insights that might be missed by human evaluators, thus enhancing the efficiency and accuracy of credit assessments.
The Reserve Bank of India (RBI) is actively supporting the integration of AI in the banking sector. RBI Governor Sanjay Malhotra has emphasized the potential of the Account Aggregator (AA) framework and the newly launched Unified Lending Interface (ULI) platform to improve credit access for underserved populations. These initiatives aim to standardize and streamline lending processes, enhancing financial inclusion by strengthening the credit delivery system through banks and non-banking financial companies (NBFCs).
While the benefits of AI and automation are evident, the RBI has also highlighted the importance of prudent risk management. The central bank has proposed a framework for AI adoption in India’s finance sector, estimating that AI could improve banking efficiency by up to 46%. However, it also cautioned against potential financial stability risks associated with the growing use of AI, such as market concentration and cybersecurity vulnerabilities. Therefore, the RBI is working to ensure that AI implementation is done responsibly and in compliance with regulatory standards.
The integration of AI and automation in Indian banking is not only enhancing operational efficiency but also redefining customer experiences and credit accessibility. By leveraging advanced technologies, banks and fintech companies are creating a more inclusive and responsive financial ecosystem. As these innovations continue to evolve, they hold the potential to significantly transform the landscape of banking in India, making financial services more accessible, efficient, and secure for all.
