Indian banks may face an AI compliance bill: Who will bear the cost?
New Delhi, Jun 29, 2026
RBI's proposed AI risk framework could raise compliance costs across banks, NBFCs and fintechs, creating new demands for audits, oversight and governance
India’s financial sector may be entering a new phase of AI adoption -- one where the challenge is shifting from building artificial intelligence tools to governing them.
The Reserve Bank of India’s (RBI's) draft guidance on model risk management proposes a far tighter compliance architecture for banks and regulated entities using artificial intelligence and machine learning (AI/ML). The framework goes beyond model performance and brings board-level accountability, independent validation, continuous monitoring, stress testing and mandatory human oversight into the regulatory process.
While the framework aims to make AI-led finance safer and more transparent, it also raises a difficult question: who will bear the cost of compliance?
For banks, non-banking financial companies (NBFCs) and fintech firms increasingly using AI in lending, fraud detection, onboarding and customer service, compliance requirements could become the next major investment cycle.
AI governance could become finance’s next cost centre
RBI’s proposed framework applies to all models -- whether built internally, sourced from vendors or developed jointly. Institutions may need board-approved model risk frameworks, independent validation, stress testing, stronger cybersecurity controls and customer disclosure mechanisms.
Industry experts say implementation costs may not be small.
Shams Tabrej, co-founder and CEO of Ezeepay, told Business Standard, “The cost of compliance is going to be high, especially in the early years, during which governance, documentation, monitoring of models, audit trail, and expertise for compliance management would be set up.”
According to him, large banks already operate mature governance systems and may integrate AI oversight more easily. “NBFCs and fintech firms may require additional investment in terms of technology, human resource, and independent oversight framework," he said.
Tabrej added that some of the compliance cost would also trickle down into the price of services, vendors, and technology alliances.
Jitendra Tanwar, managing director and CEO at Namdev Finvest Limited, said the requirements would create meaningful upfront investments.
“This includes board-level oversight, continuous model monitoring, validation processes, documentation standards, and robust auditability of AI-driven decisions. It will also necessitate investment in technology infrastructure, data governance capabilities, and specialized risk and compliance talent," he told Business Standard.
Still, he argued that the framework should be viewed as an investment in institutional resilience rather than a regulatory burden.
Smaller players may feel more pressure
One of the biggest questions is whether compliance could widen the gap between large institutions and smaller financial players. Large banks already maintain risk, compliance and governance teams. NBFCs and fintech firms often operate with leaner structures and faster deployment cycles.
Tabrej said the framework may widen differences in the short term but could also create collaboration opportunities. “This will lead to increased usage of compliance systems, AI governance software, and third-party validation services, which will help smaller institutions meet the requirements without doing everything on their own," he said.
Srividhya Sridhar, group general counsel at Vivriti Next, an NBFC, said the adjustment may ultimately strengthen business outcomes. “Adoption of these models for automated decisioning is much higher in new age NBFCs and Fintech as compared to legacy banks," Sridhar told Business Standard.
She said institutions adopting governance standards early could improve credibility with lenders and partners.
Could AI compliance become a new industry?
Experts say RBI’s framework may create an entirely new services market around AI assurance.
As institutions adopt AI more deeply, they may increasingly outsource model audits, validation, explainability testing and governance functions.
Tabrej said growth in model validation, bias testing, explainability studies and governance support is expected, “The greater adoption of AI in credit lending, fraud detection, customer service, onboarding, and risk management implies an increased need for independent assurances,” he said.
Tanwar said as regulatory expectations become clearer and more formalised, financial institutions will increasingly require independent third-party expertise to evaluate model performance, fairness, explainability, and overall governance compliance.
Will stronger governance slow innovation?
But what if these stronger controls slow AI experimentation?
Industry participants largely believe the opposite. Sushantam Mohan, chief data officer at Vivriti Next, said global regulators have already moved in this direction.
“Although establishing these advanced corroboration, validation, and continuous monitoring systems represents operational and financial cost, mitigating the risks of unexplained decisions is in the absolute strategic and financial interest of the NBFC and benefits end up outweighing the costs in long run,” he said.
Mohan added that some compliance costs may also shift to AI vendors making products easier to adopt.
Tabrej argued that regulation should remain proportional. “Provided it is well-thought-out, increased governance will not hinder innovations but will help to build a more trustful environment with institutions, regulators, and customers being more confident in AI usage," he said.
Tanwar said the industry cannot afford uncontrolled AI decision-making in finance. “This is precisely why a human-in-the-loop approach and strong governance guardrails matter during this phase of adoption.”
RBI’s draft framework suggests that as AI becomes central to finance, competitive advantage may depend not just on who adopts it first, but on who can govern it best. Compliance may raise costs initially, but trust and accountability could become equally valuable assets.
[The Business Standard]
