RBI Panel Proposes Ethical AI Framework For Financial Sector

The Reserve Bank of India (RBI)  has appointed a committee in December 2024 to frame guidelines for the responsible deployment of artificial intelligence (AI) in the financial sector. Now, the committee has filed its report, which was released on 13 August 2025.

The structure is referred to as the Framework for Responsible and Ethical Enablement of Artificial Intelligence, or FREE-AI. It is intended to lead the use of AI among banks, non-bank lenders, fintech firms and other institutions.

Seven Guiding Principles

The report defines seven guiding principles, which it refers to as the Seven Sutras. These are meant to form the basis of the application of AI in the financial system. The guiding principles are: trust is the building block, people first, innovation over restraint, fairness and equity, accountability, understandable by design, and safety, resilience and sustainability.

The report says that these principles are designed to make sure that artificial intelligence is implemented in a manner that aids both innovation and risk control.

Recommendations in Six Pillars

The committee has provided 26 implementable recommendations. These are organised under six strategic pillars: infrastructure, policy, capacity, governance, protection and assurance.

Under the infrastructure pillar, the committee has proposed the building of shared digital infrastructure to facilitate AI. It has also proposed the establishment of an innovation sandbox to enable secure testing of new tools and solutions.

The policy pillar contains the suggestion that financial institutions implement board-approved policies regarding the implementation of AI. Such policies are to be revised as the technology changes. The committee also recommended that a permanent organisation under RBI be established to monitor developments and risks in this field.

The capability pillar is the development of knowledge and skills. The report suggests training packages for board members, senior management, staff and regulators to enhance knowledge about artificial intelligence and its use.

The governance pillar emphasises data governance and supervision. The report says artificial intelligence must be included in risk assessment, approvals and audits within financial institutions.

The pillar on protection embraces cyber security and resiliency. It suggests incorporating certain measures for AI in business continuity planning, incident reporting and security testing.

The pillar of assurance suggests that financial institutions keep a list of all artificial intelligence systems deployed. It also suggests periodic audit of these systems and incorporating artificial intelligence-related disclosures into annual reports.

Implementation and monitoring

The committee has proposed that regulators adopt a supervisory model striking a balance between innovation and risk management. It proposes intensive monitoring of artificial intelligence systems and reporting throughout the sector.

The report further puts forward the creation of a specific fund to finance the development of artificial intelligence tools appropriate for the Indian finance sector.

The report also offers a systematic approach to use AI in finance. Through the designation of seven guiding principles and 26 recommendations under six pillars, it seeks to establish an environment in which technology is used effectively while risks are mitigated. The report has been published on the RBI website for further information.