RBI Governor Urges Banks to Use AI to Approve Loans Humans Would Reject

The Governor of the Reserve Bank of India (RBI), Sanjay Malhotra, has called on financial institutions to leverage artificial intelligence to approve loans for borrowers who would typically be rejected by human assessors. Speaking at the FIBAC 2026 conference in Mumbai on August 11, 2026, Malhotra argued that AI can significantly expand the "bankable" population across India by identifying creditworthy individuals overlooked by traditional methods.

According to Malhotra, AI models trained on alternative data can extend the frontier of financial access "considerably further than manual underwriting ever could, at a fraction of the marginal cost per loan." Rather than relying on lagging financial statements, the RBI suggests that banks utilize real-time data points—including cash flows, GST filings, utility payments, and digital footprints—to assess the creditworthiness of small businesses, gig workers, and first-time borrowers.

The Push for Financial Inclusion

This initiative targets India's significant "underbanked" population, many of whom currently rely on unregulated lenders due to a lack of formal credit history. By moving beyond manual underwriting, the RBI aims to accelerate financial inclusion and identify both creditworthy borrowers and emerging financial stress more rapidly than traditional systems allow. This shift is particularly critical for the informal economy, where traditional documentation is often absent but digital footprints provide a reliable proxy for stability.

Accountability and Governance

Despite the push for automation, the RBI is maintaining a hard line on governance. Malhotra emphasized that the adoption of AI does not absolve financial institutions of their regulatory duties. He stated that "no matter how sophisticated the model, the responsibility for a bank's decisions rests with the bank, not with its algorithm."

This requirement for meaningful human oversight is designed to prevent systemic risk and algorithmic bias. The RBI's stance indicates that while AI is a powerful tool for expansion, banks remain fully accountable for every AI-driven decision they execute. This ensures that the drive for efficiency does not bypass the prudent risk management essential to central banking.

A Strategic Shift in AI Policy

This move represents a strategic pivot by one of the world's major central banks, transitioning AI from a risk to be contained into a capability to be harnessed for social and economic inclusion. By encouraging the formalization of credit for the informal economy, the RBI is attempting to integrate a vast segment of the population into the regulated financial system.

Moving forward, the industry will be watching how banks implement these "explainability" standards to satisfy the RBI's oversight requirements. The success of this shift depends on whether institutions can balance the efficiency of alternative data with the strict accountability demanded by the central bank.