How state owned banks are embracing AI 

As new models are emerging, state-owned lenders are expanding the adoption of artificial intelligence (AI) across the various parts of their businesses. It’s simplifying and speeding up processes, fraud detection, and cyber security.

“We are investing deeply in becoming an AI-first organisation. Through our analytics 2.0 initiative, we are embedding AI across the value chain, moving towards a truly data-driven operating model,” CS Setty, the chairman of State Bank of India, said.

The country’s largest lender was an early adopter of conventional AI models, using AI and analytics to disburse personal loans. SBI has also been deploying AI in monitoring transactions, monitoring money laundering activities etc. It’s now building on its AI stack as it prepares for gen-AI and agentic-AI adoption from the business as well as technology side.

“Hopefully in the current financial year itself we will have several use cases, which use gen-AI and agentic-AI capability,” Setty stated.

He stressed that AI and cyber security have always been a priority for the lender, and it is setting up a cyber security centre of excellence.

State-owned rival Bank of India is internally running Project Aditya, where it has been executing AI use cases in several areas.

According to officials, as of now 31-32 use cases are there across various segments of the bank, whether its business underwriting process, monitoring collections, customer onboarding etc. and the bank intends to take these AI use cases to 50 in the current financial year.

“We are using AI in multiple places, like processing capabilities, onboarding of customers, the loan journey, we are using it in collection management… We are also using it to detect mule accounts. We have a mule hunter, which detects whether an account is a mule account or a normal account,” pointed Rajiv Mishra, executive director of Bank of India.

Fraud risk management is an area, where Bank of Baroda is also increasingly deploying AI tools.

“Backend we have been using AI and have significantly derived value out of it,” noted Debadatta Chand, the MD and CEO of Bank of Baroda.

AI is also “extensively” being used across areas like customer service and underwriting among other things at the PSU bank.

“We are deploying AI directly at the front of the customer. We recently introduced an AI powered communication tool, where the customer can speak in any language and the employee can speak in any language, but they can seamlessly interact with each other,” said Chand.    

According to a survey by industry body FICCI and Indian Banks Association (IBA) published in April, AI is widely perceived as the most disruptive development likely to reshape banking operations in the near-term, particularly in areas such as credit underwriting risk assessment and collections.

Concerns have been rising around cyber security risks with new AI models like Anthropic’s Claude Mythos, prompting discussions and advisories from regulators worldwide. Anthropic hasn’t yet released Mythos for public. It is claimed to have advanced capabilities that help analyse and exploit software vulnerabilities and previously unknown security flaws in legacy code on a massive scale.

Finance Minister Nirmala Sitharaman last month held a meeting with top banks around this growing AI challenge. Capital markets regulator Sebi has also set up a separate task force for AI, which among other things, will closely examine the cybersecurity risks posed by AI-based models and devise a uniform mitigation strategy against the risks posed by them.

The RBI is also understood to be in discussions with global regulators, government officials and banks on the potential risks posed by models like Mythos.

SBI’s Setty noted that recent developments in advanced AI models had highlighted the increasing sophistication and speed at which vulnerable risks can be identified and exploited and that had placed the Indian banking system on a heightened state of alert.

“The industry is working closely with the Government of India and the RBI towards a coordinated cyber-resilience framework,” he said.

The ecosystem, whether its regulators, banks or organisations like NPCI (National Payments Corporation of India), will have to work together, given the interconnectedness of the system, noted, Bank of India’s Mishra.