India Should Develop Multi-Sectoral AI Sandboxes To Support Responsible Adoption: DFS Official

New Delhi, Sept 1 (KNN) India should develop multi-sectoral regulatory sandboxes to accelerate artificial intelligence (AI) adoption while enabling financial institutions and regulators to test new applications in controlled environments, Debasish Prusty, Additional Secretary, Department of Financial Services (DFS), said on August 31.

Speaking at the Punjab National Bank AI Summit, Prusty said banks and financial institutions are increasingly experimenting with AI and require an enabling regulatory framework to support responsible adoption, reported Money Control.

Regulatory Sandboxes Seen As Key To AI Adoption

He noted that India remains at an early stage of AI adoption across the banking, financial services and insurance (BFSI) sector compared with several other countries, leaving significant scope for wider deployment.

According to Prusty, effective AI adoption could improve productivity across banks, with individual institutions needing to develop strategies based on their specific use cases.

India Needs Domestic AI Models For Finance

He also called for greater development of AI models tailored to India’s financial sector, noting that reliance on global models could entail significant costs.

Domestic models designed for financial-sector requirements could help reduce these costs and strengthen self-reliance, he said.

AI Use Expands Across Banking Operations

AI is increasingly being explored by banks for applications including customer service, credit assessment, risk management and fraud detection.

Prusty said the technology could also support financial inclusion by helping institutions expand services and cater to India’s large and diverse customer base.

AI Seen Strengthening Fraud Detection

He highlighted fraud detection as another area where AI and machine-learning systems could play a key role, particularly by identifying abnormal transaction patterns in real time and enabling financial institutions to respond to sophisticated fraud.

The growing use of AI in financial services has also increased the need for regulatory frameworks that balance innovation with safeguards relating to data, model behaviour, consumer protection and financial stability.

(KNN Bureau)