(DH)
Indian financial institutions must guard against relying on algorithms and artificial intelligence to assess customers for loans, central bank Governor Shaktikanta Das said. Model based, algorithm lending can “lead to a potential crisis,” Das said.
Model based, algorithm lending can “lead to a potential crisis,” Das said in a speech at an annual banking event hosted by the Mint newspaper in Mumbai on Thursday. Banks and non-bank financial companies “must appraise robustness of models used for lending,” he said.
The Reserve Bank of India has tightened restrictions on risky lending in recent months to improve financial stability. In November, it raised the capital cost of unsecured lending by banks, and followed that up by instructing lenders to offload investments in alternate investment funds, or bear hefty provisioning costs against those assets. Das said that some banks and non-bank financial companies didn’t have the bandwidth to manage surge in loans approved by algorithm.
