Artificial Intelligence in Indian Banking Sector

The future of banking is artificial intelligence, as it brings the power of advanced data analytics to counter fraudulent transactions and boost compliance.

Digital innovation is redefining industries and transforming the way corporations work. In this technology-driven world, every industry is analyzing options and implementing ways to ensure that quality services are provided to the customers. In their day-to-day activities, customers remain busy, so they expect banks to deliver a seamless experience. Banks have widened their industry landscape to retail, IT and telecommunications to allow services such as mobile banking, e-banking, and real-time money transfers. Although these improvements have made it possible for consumers to use most of the banking facilities at their fingertips at any time, the banking sector has also become costly everywhere. Banking is one of the sectors in which AI adoption is rapid, as banks are proactive in improving customer service by taking information which is important for the banks. AI innovations have shown the ability to make things easier whether it is lending, insurance or asset management.

Artificial intelligence is a computer machine that can feel, comprehend, function, and understand. In other words, a machine can interpret the world around it, evaluate and understand the information it receives, take actions based on that understanding, and enhance the machine’s efficiency. The ability of computers to think on their own and perform a task without human interference is artificial intelligence. Technologies such as Machine Learning, NLP, Deep Learning, Voice Recognition, Image Processing, and others accomplish it by gathering, purifying, and analyzing vast quantities of data.

Government regulations have been strengthened due to rising online security threats in banking transactions. According to the Central Government of India, in January 2018, India’s Ministry of Electronics and Information Technology (MeitY) launched Cyber Surakshit Bharat to strengthen the cybersecurity ecosystem in India. This program was in association with the National e-Governance Division (NeGD).

According to India Brand Equity Foundation (IBEF), the Indian banking system consists of 12 public sector banks, 22 private sector banks, 46 foreign banks, 56 regional rural banks, 1,485 urban cooperative banks, and 96,000 rural cooperative banks in addition to cooperative credit institutions.

According to the Central Government of India, in 2017, India’s Ministry of Electronics and Information Technology launched Cyber Swachhta Kendra to detect malicious programs using cleaning bots. Furthermore, the Central Government of India set up a department to generate situational awareness about existing and potential cyber security threats — National Cyber Coordination Centre (NCCC).

Although these regulations are useful for tracking online financial transactions, the capacity of banks to keep up with the digital revolution has been curtailed. Banks are unable to invest in technology because, as per international regulatory framework guidelines, they have to maintain a capital ratios. Thus, banks fall prey to the competition posed by nimble Financial Technology (FinTech) players, which do not have to maintain capital adequacy ratio. Using artificial intelligence (AI) cognitive technology brings the benefit of digitization to banks and helps them face the competition posed by players in FinTech.

According to India Brand Equity Foundation (IBEF), Unified Payments Interface (UPI) recorded 1.25 billion transactions in March 2020, valued at US$ 29.22 billion.

The future of banking is artificial intelligence, as it brings the power of advanced data analytics to counter fraudulent transactions and boost compliance. In a few seconds, the AI algorithm conducts anti-money laundering operations, which otherwise require hours and days. In order to gain useful insights from it, AI also helps banks to handle massive amounts of data at record speed.

According to Reserve Bank of India (RBI), in 2019, losses due to banking frauds rose by a whopping 73.8% despite the Government’s efforts to curb them.

Insurance is also a data-heavy market. Manually analyzing data and patterns that could assist in fraud detection or claim management is not feasible. With the aid of predictive models, deep learning techniques for image analysis can assist in the automated repair cost analysis of damaged vehicles. Therefore, the reduction in processing period will play a critical role in consumer’s experience. Fraud detection analysis can be done with the help artificial intelligence.

According to India Brand Equity Foundation (IBEF), gross premium collected by life insurance companies in India increased from US$ 39.7 billion in FY12 to US$ 94.7 billion in FY20.

AI can understand the behavior of the clients. This helps banks, by incorporating customized features and intuitive experiences, to customize financial products and services to provide meaningful customer experience and create good relationships with their customers.

Customers today demand quicker, intimate, and meaningful services and connections with their banks and little tolerance for unsolicited generic messages.

In areas where decisions are based on accessible structured and unstructured data, AI is a good replacement. For instance, it can assist in predicting potential loan defaulters and provide solutions for loss reduction that will work for them. It may assist in deciding the right time to approach a customer to market a new product. Smart settings based on AI can collect data from multiple sources, drive inferences, and allow SMEs to take decisions. Using intelligent automation, AI can also enhance straight-through processing to simplify repetitive processes that require decision making.

Leading Indian banks such as State Bank of India, HDFC Bank, Axis Bank, and ICICI Bank have adopted AI solutions.

State Bank of India launched an AI-based solution, which is known as SBI Intelligent Agent, a chat assistant, in May 2018, which help customers with everyday banking tasks just like a bank representative. Millions of questions from thousands of clients have been replied to by the Chatbot. It is believed that SIA is set up to handle approximately 10,000 or 864 million requests per second per day, which is almost 25% of Google's queries processed every day. SIA was developed by Payjo, a startup based in Silicon Valley and Bengaluru.

Housing Development Finance Corporation Limited (HDFC) bank launched ‘Eva’ AI-based Chatbot, which was developed by Senseforth AI Research based in Bengaluru in March 2017. Eva (which stands for Electronic Virtual Assistant) has handled over 2.7 million customer requests since its launch, and it has communicated with over 530,000 unique users and had 1.2 million conversations. Eva can assimilate knowledge from thousands of sources and provide simple answers in less than 0.4 seconds. Furthermore, in October 2020, HDFC Bank and Apollo Hospitals partnered to launch the ‘HealthyLife Programme’, a holistic healthcare solution that makes healthy living accessible and affordable on Apollo’s digital platform.

In November 2020, HDFC bank launched SmartHub Merchant Solutions 3.0, the first integrated banking and payment solution for retailers across the globe, which allows retailers and self-employed professionals to open a current account quickly and begin to accept in-store, online, and on-the-go payments. SmartHub 3.0 provides the ideal forum to enter the digital ecosystem through a simple, convenient, and safe solution for small merchants and self-employed professionals

AXIS bank launched an innovation lab called Thought Factory in July 2017, to accelerate the development of innovative AI technology solutions for the banking sector.

In 200+ business processes, ICICI bank has deployed software robotics across different company functions, built mostly in-house using AI features such as facial and voice recognition, natural language processing, machine learning, and bots, among others. At ICICI Bank, software robots are designed to capture and interpret system information, identify patterns, and run business processes to conduct activities across multiple applications. The software robots at ICICI Bank are configured to capture and interpret information from systems, recognize patterns and run business processes across multiple applications to execute activities, including data entry and validation, automated formatting, and multi-format message creation

Bank of Baroda has set up a hi-tech digital branch with sophisticated devices such as the Baroda Brainy artificial intelligence robot and the free Wi-Fi Digital Lab.

YES bank has partnered with a bot network, Gupshup, to launch a banking Chatbot for its loan product, 'YES mPower.' YES ROBOT is equipped to answer consumer banking-related queries at anytime, anywhere without the hassle of waiting or searching online for an AI product.

Canara Bank launched Mitra, a humanoid robot developed by Bengaluru-based Invento Robotics, which helps customers navigate the bank.

IndusInd Bank launched Alexa Skill, ‘IndusAssist’, in September 2018, using which bank account holders can conduct financial and non-financial banking transactions with Alexa, Amazon’s virtual assistant.

The banking robot, Lakshmi, was launched by City Union Bank. On more than 125 subjects, the robot can communicate with clients. The robot is also programmed to communicate with the core banking solution, in addition to answering generic questions.

AI will not only inspire banks by automating its knowledge workforce, it will also make the whole process of automation intelligent enough to do away with cyber risks and competition from FinTech players. AI, integral to the processes and operations of the bank, and without significant manual intervention, continues to evolve and innovate with time. In order to be cost-efficient and deliver personalized services, AI will allow banks to optimally leverage human and machine capabilities. All these advantages are no longer a futuristic idea for banks to achieve. Through the adoption of AI, banking sector leaders have already taken steps to reap these benefits with due diligence.