RBI's AI Kill Switch Rule Puts Banks, NBFCs on Notice

Banks and NBFCs built decision engines over decades. Some are in Excel files sitting on a credit officer's desktop. Some are rule-based approval trees written in COBOL. The RBI now demands a comprehensive catalogue of every one of them, regardless of origin. Sajeev Viswanathan, CEO of New Street Technologies, said the draft shows a nuanced approach but that the board-level accountability clause changes the conversation. "Rather than imposing blanket restrictions on AI, the RBI has proposed a tiered risk framework that differentiates between low- and high-risk use cases. Combined with board-level accountability and human oversight mechanisms, the framework seeks to enable innovation while preserving financial stability."

Customer-facing AI systems must also disclose that a user is interacting with an AI and offer a human alternative on request.

Where the risk builds

The biggest exposure is execution risk. Institutions that cannot produce a model inventory by the compliance deadline face regulatory scrutiny. The cost of building the inventory, validating models, and installing kill switches is material – especially for smaller NBFCs and cooperative banks that rely on off-the-shelf third-party software with unknown governance.

What would confirm the risk thesis: Any bank that discloses a gap in its model inventory or asks the RBI for an extension. A major outage where a kill switch failed to activate. A public audit finding bias in an underwriting model that was never catalogued.

What would weaken the risk thesis: The industry meets the July 24 deadline with credible inventories. The RBI softens the scope to exclude legacy systems once they are replaced. Large banks demonstrate that their model risk frameworks already cover the new requirements.

The RBI has indicated it may add AI-specific rules later. For now, the message is straightforward: inventory everything, explain every decision, and be ready to kill the model if it goes sideways.

The comment period closes July 24.