India’s financial regulators are sharpening their focus on artificial intelligence as digital fraud and mule accounts continue to rise across the banking system. Officials now see AI less as a quick fix and more as a support tool whose impact will depend on strong data foundations shared platforms and readiness across institutions.
At recent industry discussions, senior policymakers said AI could help shift oversight from reacting to fraud to anticipating it. By analysing global and domestic macroeconomic trends, AI models could flag early signs of stress before they spread through the financial system. Officials said this early warning role could reduce the risk of events that may otherwise turn disruptive. They stressed that the real strength of AI lies in handling large and varied data sets which older systems built to respond after incidents are not equipped to manage.
That cautious approach was reinforced by T Rabi Sankar, Deputy Governor of the Reserve Bank of India. He said any AI driven fraud detection system is only as good as the data it uses. Many banks rely on limited information such as payments, data or internal records which restricts the ability to spot complex fraud networks. According to him, platforms that use system wide data rather than siloed inputs are better placed to detect fraud early or control damage later. The choice he said, is not between humans and machines but between fragmented information and integrated intelligence.
Regulators are now urging banks to join pilots for shared intelligence platforms such as MuleHunter and digital payments intelligence systems. They have called for closer coordination with the central bank innovation and fintech teams to ensure these tools move quickly from testing to wide deployment. Meanwhile concerns over the scale of fraud remain serious. M Nagaraju, Secretary in the Department of Financial Services said the situation is “not very good” as digital frauds and mule accounts continue to grow. Citing official data, he said in 2024-25, private sector banks accounted for 59.3% of total fraud cases while public sector banks made up 70.7% of the total amount involved.
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