RBI Official Urges Banks to Minimise Data Hoarding to Enable Responsible AI Use
An official of the Reserve Bank of India has called on banks to rationalise the volume of data they collect and retain, cautioning that excessive data hoarding can hinder innovation while increasing compliance and risk exposure. The remarks come as banks accelerate the use of artificial intelligence across lending, fraud detection, customer onboarding and risk management functions.
The official emphasised that AI-driven innovation does not require indiscriminate data accumulation. Instead, banks should focus on collecting data that is relevant, accurate and purpose-specific, aligned with clearly defined use cases. Unnecessary data retention, the official noted, can raise privacy concerns, elevate cybersecurity risks and complicate regulatory compliance without delivering proportional value.
As banks deploy AI models at scale, data governance has emerged as a critical foundation. Poor data quality, unclear ownership and fragmented datasets can undermine model performance and decision integrity. The official highlighted the need for robust data lifecycle management, including defined retention periods, access controls and regular audits, to ensure that AI systems remain transparent, explainable and compliant.
The guidance also reflects evolving regulatory expectations around data protection and accountability. With stricter norms on privacy and digital governance, banks are under pressure to demonstrate that data collection practices are proportionate and justified. Streamlining data practices can help institutions align AI initiatives with legal and ethical standards while reducing operational complexity.
From a risk management perspective, the call to limit data collection underscores the link between technology innovation and prudential discipline. Excessive data repositories can become attractive targets for cyberattacks and increase the impact of potential breaches. By contrast, leaner data architectures can improve resilience and support faster, more secure AI deployment.
The remarks signal a broader regulatory push to encourage responsible AI adoption in the banking sector. Banks are expected to balance innovation with governance by embedding data discipline into enterprise risk frameworks, ensuring that AI-driven growth is sustainable, compliant and aligned with customer trust.
For more structured learning, please visit our website Smart Online Course, where we offer multiple courses to help you deepen your understanding of risk management.
#Bankingnews
