The Reserve Bank of India today released a draft ‘Guidance on Regulatory Principles for Model Risk Management‘ for public comments, marking a significant expansion of its oversight of AI and machine learning models used by regulated entities.
The draft Guidance applies to Commercial Banks, Small Finance Banks, Payments Banks, Local Area Banks, Regional Rural Banks, Urban and Rural Co-operative Banks, All India Financial Institutions, Non-Banking Financial Companies, Asset Reconstruction Companies, and Credit Information Companies.
According to the draft framework, regulated entities will be required to maintain a kill switch arrangement enabling the immediate override, suspension, or deactivation of any AI model in use, alongside documented human oversight, customer disclosure when AI influences a decision, risk management protocols for third-party AI providers, board-level accountability for AI governance, and a risk-based approach to model oversight.
The Guidance builds on RBI’s draft “Regulatory Principles for Management of Model Risks in Credit,” issued in August 2024, and the report of the Committee on Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI), published in August 2025. The current draft extends regulatory expectations beyond credit models to cover all models used by regulated entities, including third-party models and those employing AI and machine learning, across the full model lifecycle.
RBI has invited comments from regulated entities, members of the public, and other stakeholders by July 24, 2026, through the ‘Connect 2 Regulate’ section on its website, or by post or email to the Chief General Manager, Operational Risk Group, Department of Regulation, Central Office, RBI.
Source: Reserve Bank of India press release
