The Reserve Bank of India’s (RBI) FREE-AI framework for responsible adoption of artificial intelligence has brought into focus the limited penetration of AI among Urban Cooperative Banks (UCBs), even as India pushes for technology-led inclusive growth. While India’s digital public infrastructure provides a strong foundation for AI integration in financial services, adoption across the sector remains uneven.
According to RBI surveys cited in the framework, only around 21 per cent of banks and financial institutions have implemented or are developing AI-based solutions. Adoption is largely concentrated among larger banks, while many UCBs face significant constraints, including inadequate data infrastructure, shortage of skilled personnel and limited IT budgets.
Even among early adopters within the cooperative banking space, AI use remains basic, largely restricted to improving process efficiency, customer interaction through simple chatbots, lead generation and internal decision support systems. Advanced applications involving autonomous decision-making are yet to gain traction.
The RBI’s FREE-AI framework seeks to address these gaps by promoting innovation alongside strong risk management. Aligned with the India AI Mission and the Digital Personal Data Protection Act, the framework aims to create a safe, scalable pathway for UCBs to gradually adopt responsible AI and enhance service delivery.