Smart Lending: RBI Urges NBFCs to Adopt AI and Strengthen Underwriting

Reserve Bank of India Deputy Governor Swaminathan J. has called on non-banking financial companies to adopt artificial intelligence and enhance credit underwriting standards.

Addressing financial sector stakeholders in September 2026, Reserve Bank of India (RBI) Deputy Governor Swaminathan J. emphasized that non-banking financial companies (NBFCs) must proactively upgrade their technological infrastructure and risk management protocols as domestic credit growth accelerates. Speaking on regulatory expectations, the senior central banker stressed that shadow banking entities cannot rely solely on rapid loan expansion without embedding rigorous data analytics, automated validation models, and artificial intelligence (AI) tools into their credit underwriting pipelines to safeguard financial stability.

Integrating Artificial Intelligence and Advanced Analytics

The central bank's directive highlights the evolving role of technology in monitoring credit risk across retail, microfinance, and commercial lending portfolios. According to official statements from the monetary authority, NBFCs must leverage machine learning algorithms and advanced analytics to detect early warning signals of borrower distress and prevent potential asset quality slippages.

While digitization has significantly reduced loan processing times across the non-banking financial sector, the RBI cautioned that speed must not compromise credit appraisal thoroughness. Institutions are encouraged to deploy automated fraud-detection engines and robust behavioral scoring models to ensure sustainable credit expansion across semi-urban and rural markets.

Managing Asset Quality and Liquidity Risks

For lenders, retail borrowers, and institutional investors, the regulatory focus on underwriting standards signals a tighter oversight framework aimed at curbing unsecured lending risks. Rapid portfolio scaling without proportional risk mitigation can expose shadow lenders to sudden liquidity shocks and rising non-performing assets (NPAs).

Financial analysts noted that NBFCs maintaining conservative provisioning norms and diversified funding sources will be best positioned to meet the central bank's compliance expectations while sustaining healthy credit growth trajectories throughout the current fiscal year.

Official Sources Section

Regulatory guidelines, supervisory directives, and official addresses are based on announcements and speeches issued by the Reserve Bank of India and the Ministry of Finance, Government of India. Additional industry data was referenced via market reports published by BSE Limited.

Quote Section

"According to official regulatory statements and central bank addresses, NBFCs must strengthen their underwriting standards and integrate artificial intelligence to manage credit risks effectively amid accelerating growth."

Why It Matters

Robust underwriting standards and AI-driven risk models are essential for preventing systemic vulnerabilities in the shadow banking sector. For financial institutions, adopting these technologies ensures sustainable credit expansion while protecting retail and commercial borrowers from over-indebtedness.

Key Facts at a Glance

• Key Speaker: Swaminathan J., Deputy Governor, Reserve Bank of India.

• Core Directive: NBFCs must adopt AI and strengthen credit underwriting as lending grows.

• Primary Objective: Mitigate asset quality risks and enhance early-warning fraud detection.

• Regulatory Focus: Balancing rapid credit expansion with rigorous risk management protocols.

Frequently Asked Questions

• What did the RBI Deputy Governor advise NBFCs to do? The RBI urged non-banking financial companies to strengthen their credit underwriting standards and adopt artificial intelligence technologies.

• Why is enhanced underwriting necessary for NBFCs now? Accelerating credit growth and increasing exposure to unsecured lending require robust risk management to prevent asset quality deterioration.

• How can artificial intelligence help shadow lenders? AI tools enable automated fraud detection, precise behavioral scoring, and early identification of borrower financial distress.

• Where were these regulatory directives officially announced? The statements were delivered by senior central bank leadership during official financial sector addresses in September 2026.

Source: Reserve Bank of India, Ministry of Finance, Government of India, BSE Limited