# How does the RBI regulate AI in banking?

Source: https://www.bankingnewsai.com/ai-regulation/rbi
Last updated: Oct 5, 2026

As of 5 October 2026 the Reserve Bank of India has not issued binding AI-specific rules for banks. Its AI position rests on the report of the FREE-AI Committee (Framework for Responsible and Ethical Enablement of Artificial Intelligence), released on 13 August 2025 with seven "Sutras" and 26 recommendations, and on a draft Guidance on Regulatory Principles for Model Risk Management published on 24 June 2026, which covers all models including AI/ML and generative AI and invited comments until 24 July 2026. The draft is not final and no date for the final text has been announced. Until the final guidance is issued, the practical hooks are RBI's existing directions on outsourcing, cyber security, IT governance and customer protection, which the FREE-AI report says already apply to AI.

## At a glance

| Field | Value |
| --- | --- |
| Full name | Reserve Bank of India — India's central bank and regulator of banks, non-banking financial companies and other regulated entities (REs) |
| Jurisdiction | India (commercial banks including foreign banks, small finance banks, payments banks, local area banks, regional rural banks, co-operative banks, all-India financial institutions, NBFCs, asset reconstruction companies and credit information companies) |
| Role | Banking regulator whose AI position is a non-binding framework (FREE-AI, August 2025) plus a draft, not yet final, model-risk guidance that explicitly covers AI/ML |
| How binding | Voluntary framework |
| Applies to | Regulated entities of the RBI. The FREE-AI Committee's recommendations are addressed to regulators, regulated entities, industry bodies and government and are not RBI instructions; the June 2026 draft Guidance on Regulatory Principles for Model Risk Management would apply to commercial banks (including foreign banks), small finance, payments, local area and regional rural banks, urban and rural co-operative banks, NBFCs in all layers, all-India financial institutions, asset reconstruction companies and credit information companies. |
| Key document | FREE-AI Committee report "Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the Financial Sector" (13 August 2025), and the draft Guidance on Regulatory Principles for Model Risk Management, 2026 (24 June 2026) |
| Latest move | On 24 June 2026 the RBI released the draft Guidance on Regulatory Principles for Model Risk Management, 2026, covering AI/ML and third-party models, with comments invited until 24 July 2026; no final version had been published on the RBI website as of 5 October 2026 |

## Overview

The FREE-AI Committee, chaired by Dr. Pushpak Bhattacharyya of IIT Bombay and set up by the RBI on 26 December 2024, reported on 13 August 2025. The RBI's press release describes 7 Sutras as foundational principles and 26 actionable recommendations under six pillars: Infrastructure, Policy, Capacity, Governance, Protection and Assurance. The recommendations addressed to regulated entities include a board-approved AI policy (Recommendation 14), AI-specific product approval (17), AI incident reporting (22), a semi-annually updated AI inventory (23) and risk-based AI audits (24). Recommendation 6 says the RBI may consider issuing a consolidated AI guidance, but the report is the committee's, not an RBI direction.

The regulatory follow-through is in model risk. The RBI first issued a draft circular "Regulatory Principles for Management of Model Risks in Credit" on 5 August 2024; on 24 June 2026 it released a broader draft "Guidance on Regulatory Principles for Model Risk Management, 2026" applying to all models, including third-party models and AI/ML, with a Board-approved framework, risk-based tiering, independent validation, and specific principles on explainability, hallucination controls, red-teaming, human oversight and kill switches. On finalisation it would supersede Chapter 3 on Credit Risk Models of the Guidance Note on Credit Risk Management of 12 October 2002. Separately, the RBI's Utkarsh 2029 strategy (10 April 2026) lists issuing a framework on the use of AI in the financial sector among its deliverables, and the Reserve Bank (Commercial Banks - Asset Classification, Provisioning and Income Recognition) Directions, 2026 of 27 April 2026 include a chapter on principles for model risk management under expected credit loss, effective 1 April 2027.

## Documents (3)

- Jun 24, 2026 — [RBI draft Guidance on Regulatory Principles for Model Risk Management](https://www.bankingnewsai.com/ai-regulation/documents/rbi-model-risk-management-guidance-2026): Guidance on Regulatory Principles for Model Risk Management, 2026 (draft released for public comments) (Proposed · comment period closed)
- Aug 13, 2025 — [RBI FREE-AI framework](https://www.bankingnewsai.com/ai-regulation/documents/rbi-free-ai-framework-2025): Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) Committee Report (Final)
- Aug 5, 2024 — [RBI draft circular on Regulatory Principles for Management of Model Risks in Credit](https://www.bankingnewsai.com/ai-regulation/documents/rbi-model-risks-credit-circular-2024): Regulatory Principles for Management of Model Risks in Credit (draft circular for comments) (Proposed · comment period closed)

## Timeline

- Jul 24, 2026 — [Comment period on the draft Model Risk Management Guidance closes](https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=63006) — Comments on the draft Guidance on Regulatory Principles for Model Risk Management released on 24 June 2026 were invited from regulated entities, the public and other stakeholders by 24 July 2026.
- Jun 24, 2026 — [RBI draft Guidance on Regulatory Principles for Model Risk Management](https://www.bankingnewsai.com/ai-regulation/documents/rbi-model-risk-management-guidance-2026): RBI draft Guidance on Regulatory Principles for Model Risk Management — Guidance on Regulatory Principles for Model Risk Management, 2026 (draft released for public comments) — On 24 June 2026 the Reserve Bank of India released a draft "Guidance on Regulatory Principles for Model Risk Management, 2026" and invited comments until 24 July 2026.
- Apr 27, 2026 — [ECL Directions for commercial banks include model-risk principles; in force 1 April 2027](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=13400) — The Reserve Bank of India (Commercial Banks - Asset Classification, Provisioning and Income Recognition) Directions, 2026 introduce an expected-credit-loss framework from 1 April 2027 and contain Chapter V, "Principles for Model Risk Management under ECL", covering model inventory, risk-based tiering, documentation, validation, calibration, monitoring and third-party models.
- Apr 10, 2026 — [RBI adopts Utkarsh 2029 medium-term strategy framework](https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=62542) — The framework covers April 2026 to March 2029 and lists, among its deliverables, developing frameworks for the use of emerging technologies such as AI and Quantum in the financial sector, issuing a framework on the use of AI in the financial sector and setting up Digital and AI sandboxes.
- Aug 13, 2025 — [RBI FREE-AI framework](https://www.bankingnewsai.com/ai-regulation/documents/rbi-free-ai-framework-2025): RBI FREE-AI framework — Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) Committee Report — The FREE-AI report, released by the Reserve Bank of India on 13 August 2025, is the report of the committee chaired by Dr.
- Dec 26, 2024 — [RBI constitutes the FREE-AI Committee](https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=59377) — Following the announcement in the Statement on Developmental and Regulatory Policies of 6 December 2024, the RBI set up a committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence in the financial sector.
- Aug 5, 2024 — [RBI draft circular on Regulatory Principles for Management of Model Risks in Credit](https://www.bankingnewsai.com/ai-regulation/documents/rbi-model-risks-credit-circular-2024): RBI draft circular on Regulatory Principles for Management of Model Risks in Credit — Regulatory Principles for Management of Model Risks in Credit (draft circular for comments) — On 5 August 2024 the Reserve Bank of India published a draft circular, "Regulatory Principles for Management of Model Risks in Credit", for public comments by 4 September 2024.

## What to watch next

- Publication of the final Guidance on Regulatory Principles for Model Risk Management, and whether paragraphs 49 to 63 on AI/ML models, human oversight and kill switches survive consultation; the draft says further requirements for AI models may be issued later
- Whether the RBI issues the consolidated AI guidance contemplated by FREE-AI Recommendation 6 and Utkarsh 2029, and whether it adopts the board-approved AI policy, AI inventory, incident reporting and AI audit recommendations as binding directions
- Whether the RBI sets up the AI Innovation Sandbox and AI Standing Committee recommended in FREE-AI Recommendations 2 and 9, and the "Digital and AI sandboxes" named in Utkarsh 2029
- 1 April 2027: the ECL Directions for commercial banks, including their model-risk chapter, come into force

## FAQ

### Has the RBI issued binding AI rules for banks?

Not as of 5 October 2026. The FREE-AI report of 13 August 2025 is a committee report with recommendations, and the draft Guidance on Regulatory Principles for Model Risk Management (24 June 2026) is a draft. Banks remain bound by existing RBI directions, which the FREE-AI report says already apply to AI-driven activities.

### What is the RBI FREE-AI framework?

FREE-AI stands for Framework for Responsible and Ethical Enablement of Artificial Intelligence. The committee report released on 13 August 2025 sets out 7 Sutras (Trust is the Foundation, People First, Innovation over Restraint, Fairness and Equity, Accountability, Understandable by Design, and Safety, Resilience and Sustainability) and 26 recommendations under six pillars.

### Does the RBI's model risk guidance cover AI and machine learning?

The June 2026 draft does: its definition of a model expressly includes AI/ML, and Chapter V adds principles for models employing AI/ML, covering explainability thresholds, hallucination controls, bias and fairness assessment, red-teaming, human oversight and deactivation mechanisms. It is a draft and is not yet in force.

Related authorities: [Basel Committee](https://www.bankingnewsai.com/ai-regulation/basel-committee), [FSB](https://www.bankingnewsai.com/ai-regulation/fsb), [EU AI Act](https://www.bankingnewsai.com/ai-regulation/eu-ai-act), [UK (BoE / PRA / FCA)](https://www.bankingnewsai.com/ai-regulation/uk), [HKMA](https://www.bankingnewsai.com/ai-regulation/hkma).

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