MINI PROJECT REPORT

(KMBN – 252)
ON
“ARTIFICIAL INTELLIGENCE IN BANKING INDUSTRY”

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD

DEGREE OF MASTER OF BUSINESS ADMINISTRATION

D.R. A.P.J. ABDUL KALAM TECHNICAL UNIVERSITY

LUCKNOW
(SESSION 2023-2025)

Under the guidance of : Submitted By :

Prof. ATUL NARANG SIR HIMANI SHARMA
MBA II SEMESTER
Roll no. - 2300010700017
 CERTIFICATE

This is to Certify that HIMANI SHARMA, a student of Master OF Business

Administration (MBA) Program (Batch 2023-2025).
At this institute she has Conducted a Mini Project titled under my guidance during
2nd Semester. The Mini Project has been prepared towards partial fulfillment for the
award of MBA Degree from Dr. A.P.J ABDUL KALAM TECHNICAL
UNIVERSITY. The Mini Project report is the original Contribution of the Student.
The Mini Project report is hereby recommended and forwarded for evolution

Date: Faculty guide sign:

Student sign
 ACKNOWLEDGEMENT

I take this opportunity to express my deep sense of gratitude, thanks and

regards towards all those who directly or indirectly helped me I the
Successful Completion of this project. I Present my sincere
thanks to Prof. Dr. ATUL NARAG who has sincerely supported me with
the valuable insights into the Completion of this Project.
I am grateful to all my friends who have helped me in the Successful
Completion of this Project.
Last but not the least I am indebted to my parents who provided me their
time, Support and inspiration needed to prepare the project report.

Students Sign:
 DECLARATION

I hereby declare that project report titled Submitted by me to in partial

fulfillment of the award of degree of Master of Business
Administration. It is a record of bonfires project work carried out by me
under the guidance of Dr. ATUL NARANG further declare that the work
reported in this project has not been submitted and will not be submitted,
either in part or in full, for this the award of any other degree in this
institute.

Students Sign:
 ABSTRACT

The Banking industry is undergoing ground-breaking reforms, with a focus on the client as the
primary driver. Customers that are tech aware and often interact with cutting-edge technologies
want banks to provide smooth experiences. In order to meet these expectations, Banks have
expanded their industrial landscape to encompass retail, IT, and telecom through the use of services
like mobile banking, e-banking, and real-time money transfers. While these advancements have
allowed customers to access the majority of banking services whenever they choose, they have
also cost the banking sector money. The deployment of AI in banking and financial services,
however, also has drawbacks, such as concern about data security and privacy, algorithmic bias,
and possible job effects. It is crucial to address these issues and make sure that AI is used in an
ethical and responsible way as it becomes more commonplace in banking and financial services.
This research paper aims to explore the current state of AI in banking and financial services, as
well as its potential impact on the industry as the banking and financial services sector has seen
major operational changes as a result of the growing usage of artificial intelligence (AI). Many
industries, including customer service, fraud detection, risk management, and investment
management, are using AI technology.
 Table of Content

Page no.
S.NO TOPIC
1. Introduction 7
2. Research Methodology 9
3. Objective of the study 10
4. SWOT Analysis 11-12
5. Industry Analysis 13-15
6. ICICI Bank 16-17
7. Technology : Artificial Intelligence 18-20
8. Benefits And Limitations 21
9. Applications of Artificial Intelligence 22
10. Application in Banking industry 23-24
11. Impact of AI in ICICI 25-26
12. Challenges of AI 27-28
13. Measure to Overcome Challenges of AI 29
14. Conclusion 30
15. References 31
 INTRODUCTION

Artificial intelligence (AI) which is also called as “machine intelligence” is exhibited by

machines contrary to the usual intelligence displayed by people. Artificial Intelligence is often
used to describe machines that humans associate with the human mind, such as “learning” and
“problem solving”.
Artificial Intelligence is the ability of a machine or a computer to copy from something that
is natural, in terms of acquiring and applying knowledge and skills. when a machine mimics a
human mind by thinking for itself, it is known as Artificial Intelligence.
Artificial intelligence and advanced analytics driven decision making has transformed the ability
of smaller and financial service providers to compete with larger institutions. Today, big data
coupled with advanced statistical needs and machine learning algorithms can uncover pattern in
organization’s data which are other-wise impossible using traditional analytical tools.

In the context of banking, Accenture defines AI as, “A computer system that can sense, act and
learn. A system that can perceive the world around it analyze and understand the information it
receives, take actions based on that understanding, and improve its performance by learning from
what happened. And by enabling machines to interact more naturally - with their environment,
with people and with data - the technology can extend the capabilities of both humans and
machines far beyond what each can do on their own.”
Artificial Intelligence is an innovative and dynamic technology that has the potential to impact the
banking and finance industry significantly. AI encompasses a range of techniques that enable
machines to simulate human intelligence and perform tasks with remarkable precision. AI in
banking and finance offers various opportunities for process optimization, risk management, and
customer engagement.
One of the key areas where AI demonstrates its potential is in data analysis. With its ability to
process large volumes of structured and unstructured data, AI algorithms can identify patterns,
trends, and anomalies that may go unnoticed by human analysts. This data-driven approach
enhances decision-making, allowing banks and financial institutions to identify potential risks,
predict market trends, and optimize investment strategies. AI also plays a crucial role in customer
engagement. By leveraging natural language processing and machine learning, AI-powered
chatbots and virtual assistants can interact with customers, providing personalized assistance and
support.
These intelligent systems can handle routine inquiries, process transactions, and offer tailored
recommendations, ultimately enhancing the customer experience and improving satisfaction
levels. Moreover, AI can potentially improve security and fraud detection in the banking and
finance industry. AI algorithms can analyze vast amounts of data in real time, identifying
suspicious activities and potential fraud patterns. This proactive approach helps prevent financial
losses and protects both customers and institutions. By incorporating AI, banking and financial
institutions can stay competitive in an increasingly digital and data-driven landscape while
providing enhanced value to their customers.
Components of Artificial Intelligence
The components of artificial intelligence are as follows:
• Computer Science
• Psychology
• Neuron science
• Sociology
• Philosophy

The Role of Banking Industry

Banks play an important role and considered as life blood of today’s economy because it handles
cash, credits and other financial transactions. Banks help customers and motivates them to save
money and earn interest for a secure future. Banks also extend financial assistance to the expansion
of industries. Every financial transaction done through the banks must be properly documented.
To implement this, the banks primarily use computers. Number of the channels that banks use for
operations are through ATM’s, mails, telephone banking, online banking and mobile banking. The
smooth operation of the banking world is donethrough computers and networks are feasible only
because banks use AI.
 RESEARCH METHODOLOGY

o Research Design: The study employs analytical method of research, and it is based on
Secondary sources of information such as journals, news articles and business magazines.
Various prominent websites have been a major source of data. The study attempts to look
at the expansion of AI in banking sector in India.

❖ OBJECTIVES OF THE STUDY:

✓ To study the areas in which Artificial Intelligence (AI) can be implemented

in banking Sector in India.
✓ To analyze the impact of AI in the growth of banking sector in India.
✓ To examine various challenges faced in implementing AI in banking sector.
✓ To identify various initiatives to overcome the challenges in implementing
AI in banking Sector.
 SWOT ANALYSIS

Strengths:

1. Automation and Efficiency: AI can automate routine tasks such as customer queries,
transaction processing, and fraud detection, leading to increased operational efficiency.
2. Enhanced Customer Experience: AI-powered chatbots and virtual assistants provide
24/7 customer support, personalized recommendations, and faster response times,
improving overall customer experience.
3. Data Analysis and Insights: AI algorithms can analyze vast amounts of data to identify
patterns, trends, and insights that human analysts may overlook, facilitating better
decision-making.
4. Risk Management: AI helps in real-time risk assessment and fraud detection, reducing
financial risks for banks and customers alike.

Weaknesses:

1. High Initial Costs: Implementing AI technologies requires significant upfront

investments in infrastructure, training, and integration with existing systems.
2. Data Privacy and Security Concerns: Handling sensitive customer data raises privacy
concerns and makes banks vulnerable to cyberattacks and data breaches if not properly
secured.
3. Dependency on Data Quality: The effectiveness of AI models heavily relies on the
quality, accuracy, and diversity of the data available for training and analysis.
Opportunities:

1. Product Innovation: AI enables banks to develop innovative financial products and

services tailored to customer needs, such as personalized investment advice and
predictive lending models.
2. Competitive Advantage: Banks leveraging AI early can gain a competitive edge by
offering superior customer service, faster transactions, and more accurate risk
assessments.
3. Regulatory Compliance: AI can assist banks in automating compliance processes with
regulatory requirements, reducing costs and operational risks associated with regulatory
changes.
4. Market Expansion: AI-powered tools can help banks expand into new markets by
offering localized, personalized services and adapting to diverse customer needs more
effectively.

Threats:

1. Cybersecurity Risks: AI systems are vulnerable to cyberattacks, and breaches can result
in significant financial losses, reputational damage, and regulatory penalties.
2. Ethical and Bias Issues: AI algorithms may inadvertently perpetuate biases present in
training data, leading to unfair or discriminatory outcomes in credit scoring, loan
approvals, and other financial services.
3. Workforce Displacement: Increased automation through AI could lead to job
displacement or the need for reskilling among bank employees, potentially causing
workforce-related challenges.
4. Regulatory and Legal Challenges: Rapid advancements in AI technology may outpace
regulatory frameworks, leading to uncertainties regarding liability, accountability, and
ethical usage of AI in banking.
INDUSTRY ANALYSIS
Banking Industry :
The banking system in India consists of 12 public sector banks, 22 private sector banks, 44
foreign banks, 43 rural regional banks, 1,484 urban cooperative banks and 90,000
cooperative banks. By 2021, the total number of ATMs in India had grown to 210,940.
According to RBI, Foreign exchange reserves of India reached $ 582.42 billion as of April
16, 2021. According to RBI, bank lending and Deposits amount to Rs. 108.7 trillion ($ 1.48 trillion)
and Rs. Corresponding to 151.34 trillion ($ 2.06 trillion) as of April 23, 2021. Credit to sectors
non-food amounts to Rs. 108.02 trillion ($ 1.47 trillion), as of April 23, 2021 Assets of public
sector banks at Rs. 107.83 lakh crore ($ 1.52 trillion) in fiscal year 20.

Total assets of banking industry (including public sector, private sector and foreign banks)
grew by $ 2.52 trillion in fiscal year 2020. Indian banks are increasingly focusing on taking an
integrated approach to risk management. Commercial bank NPAs (Non-Working Assets) recorded
a recovery of Rs. 400,000 crore ($ 57.23 billion) in FY19, the highest in four years. RBI decided
to create the Public Credit Register (PCR), a large database of credit information accessible to all
stakeholders. The Bankruptcy and Bankruptcy Code (Amendment) Ordinance 2017 was passed.
This ordinance is expected to strengthen the Indian banking sector. The total equity financing of
the microfinance sector increased by 42% year-on-year, reaching 14,206 crore ($2.03 billion) in
2018.19 4,444 As of 5 May 2021, the number the number of bank accounts opened under the top
financial inclusion of the government campaign "Pradhan Mantri Jan Dhan Yojana (PMJDY)"
reached 42.37 crore and the deposit in Jan Dhan's bank account amounted to more than 1 .43 lakh
crore (US$19.61 billion). Rising income is expected to increase the demand for banking services
in rural areas and thus stimulate the growth of this area. The digital payments revolution will lead
to major changes in the way credit is disbursed in India. Debit cards have completely replaced
credit cards as the preferred payment method in India after the ads were canceled. In April 2021,
Unified Payments Interface (UPI) recorded 2.74 billion transactions worth Rs. 4.94 lakh crore ($
67.32 billion). Banks have accepted the Basel II international banking supervision agreement and
the majority of banks have met Basel III capital requirements. Increasingly dynamic business
scenarios and financial complexity have increased the demand for personalized exotic financial
products. Banks are developing innovative financial products and advanced risk management
methods to gain market share.
Access to the banking system has improved over the years thanks to the government’s persistent
efforts to promote banking technology and promote expansion into urban and unbanked areas. The
Ministry of Finance launched Jan Dhan Yojana in 2014, a financial inclusion program aimed at
expanding access to financial services such as bank accounts, credit, insurance and pensions in all
regions of India. Digital influence in the Indian banking sector has also increased due to the
growing digital footprint. Real-time Gross Settlement (RTGS) and National Electronic Funds
Transfer (NEFT) have been implemented by Indian banks for fund transactions. The market
regulator has included these two payment systems in an existing list of methods a company can
use to pay dividends or other cash benefits to its shareholders and investors.
The Reserve Bank of India (RBI) has taken several steps to enable m-payments, an important part
of m-banking services. National Payments Corporation of India has developed the Unified
Payments Interface (UPI), a real-time instant payments system that works by instantly transferring
funds between two bank accounts on a mobile platform. Banking sector credit growth moderated
in FY20. Bank credit growth accelerated from around 14.5% GDP at the beginning of the year to
6.2% in March 2020. Credit growth to the industry Industry fell to 0.7% in March 2020 from 6.9%
in March 2019. Service credit growth has increased significantly. Decreased to 7.4% compared to
17.8% over the same period. Deposit growth outpaced credit growth in FY20, despite a slowdown
in growth at the end of March 2020. Growth in total deposits relative to GDP remained above 9%
for the full year, but slowed to 7.9% in fiscal year 20.
In June 2019, RBI announced the introduction of a trading platform. Electronic to buy/sell
currency by retail customers of banks. The platform is accessible to any bank customers who need
to buy or sell US dollars against rupees for cash, spot or spot under certain conditions Years fiscal
20 was an extremely difficult year for the Indian economy. Both monetary and fiscal support are
used to hedge against downturns during the year. RBI has introduced a new liquidity management
framework under which it initiates long-term repo operations to provide sustainable liquidity to
banks.The central bank has also introduced a new external benchmarking mechanism for loans to
accelerate the transfer of key rate cuts to bank lending rates. The repo rate has fallen 1.85% on the
year, with a 0.75% drop coming in March to combat pandemic-related business disruption.
Prior to the start of the Covid19 pandemic, the RBI issued revised guidance for settlement of
stressed assets, allowing lenders to decide whether to transfer an account for settlement under the
Bankruptcy Code and Inability to pay or not. It also revised the Bankruptcy and Bankruptcy Code
to give preference to financial creditors over operational creditors in the event of a liquidation. In
March 2020, RBI imposed a moratorium on withdrawals of deposits from Yes Bank, followed by
the implementation of a reconstruction plan involving management changes and equity injection
of several Indian banks. The bank also recorded additional level 1 bonds. The government also
announced the merger of 10 public sector banks into 4 large banks. This merger takes effect from
1 April 2020. Under the scheme, Oriental Commercial Bank and United Bank of India will be
merged into Punjab National Bank; Syndicate Bank at Canara Bank; Allahabad Bank in Bank of
India; and Andhra and Corporation Banking at Union Bank of India. Including previous mergers,
the total number of public sector banks has increased from 27 banks (including SBI and affiliated
companies) to 12 banks.
In May 2020, the central government announced an economic program of Rs 20 trillion to provide
liquidity and credit support to businesses during the pandemic, especially MSMEs, develop
infrastructure in the agricultural sector and ensure the livelihoods of migrant workers. At the same
time, important long-term structural reforms were introduced. The central bank also announced a
moratorium on all loans until August 2020, to help borrowers overcome their own cash flow
problems. In addition, the RBI has asked banks not to pay dividends on their fiscal 20 year retained
earnings to help them generate capital.
As a result of the nationwide account lockout, asset quality (APN) concerns have grown, with
some sectors experiencing sudden outages. According to the RBI Financial Stability Report, the
banking sector’s total NPA could reach a two-decade high of 14.7% of total loans by March 2021.
As of March 2020, the gross NPA is 8 , 5% of the total advance. To avoid a liquidity crisis and
ensure financial stability, the RBI reduced the required cash reserve ratio (CRR) to 1% for the first
time in 7 years, providing targeted long-term liquidity facilities allowing banks to ‘buy corporate
bonds and pass them on. To non-bank financial institutions.
ICICI Bank

ICICI Bank is one of the leading private sector banks in India. The Bank’s total consolidated assets
stood at Rs 14.76 trillion as of September 30, 2020. ICICI Bank currently has a network of 5,288
branches and 15,158 ATMs across India.

History
ICICI was established in 1955 on the initiative of the World Bank, the government of India and
representatives of Indian industry. The main objective is to create a development finance
institution to provide medium, long term project finance to Indian companies. Until the late 1980s,
ICICI mainly focused its activities on project finance, providing long-term capital for various
industrial projects. With the liberalization of the financial sector in India in the 1990s, ICICI
transformed its business from a development finance institution that only provided project finance
to a service provider. Diversified Finance, along with its subsidiaries and other group companies,
offers a wide range of products and services. As the Indian economy becomes more market
oriented and integrates with the global economy, ICICI has taken advantage of new opportunities
to offer a wider range of financial products and services to a wider range of clients. ICICI Bank
was created in 1994 within the ICICI group. In 1999, ICICI became the first Indian company and
the first bank or financial institution in Asia outside of Japan to be listed on the New York Stock
Exchange.
The question of global banking, in the Indian context what it means to convert long-term lending
institutions such as ICICI into commercial banks, was discussed at length in the late 1990s. the
bank gives ICICI low-cost demand deposits and offers a wider range of products and services, as
well as a greater opportunity to earn non-fundable income in the form of bank fees and roses.

After examining the different business structure alternatives in light of the emerging competition
in the Indian banking sector and the move towards global banking, the management of ICICI and
ICICI Bank stated that the merger of ‘ICICI with ICICI Bank will be the optimal solution. Strategic
alternative to both entities, and will create the optimal regulatory structure for the ICICI group’s
global banking strategy.
The merger will increase ICICI’s shareholder value through the merged entity’s access to low-cost
deposits, greater opportunities to earn commission-based income, and the ability to participate in
payment system and providing transaction banking services. The merger will increase ICICI
Bank’s shareholder value through its substantial capital base and scale of operations, seamless
access to strong ICICI corporate relationships established over five decades. Century, entering new
business segments, a higher market share in various business segments, especially services, and
accessing the vast talent pool of ICICI and its subsidiaries.

In October 2001, the boards of directors of ICICI and ICICI Bank approved the merger of ICICI
and two of ICICI’s wholly-owned retail finance subsidiaries, ICICI Personal Financial Services
Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by the
shareholders of ICICI and ICICI Bank in January 2002, by the High Court of Gujarat in
Ahmedabad in March 2002, and by the High Court of Mumbai and the Reserve Bank of India
in April 2002. The merger, the banking and financial activities of the ICICI group, both wholesale
and retail, were integrated into a single entity.
 TECHNOLOGY: ( ARTIFICIAL INTELLIGENCE )

What is artificial intelligence?

According to the father of Artificial Intelligence, John McCarthy, it is ―Thescience and
engineering of making intelligent machines, especially intelligent computer programs.
Artificial Intelligence is a way of making a computer, a computercontrolled robot, or a
software think intelligently, in the similar manner the intelligent humans think. AI is
accomplished by studying how human brain thinks and how humans learn, decide, and work while
trying to solve a problem, and then using the outcomes of this study as a basis of developing
intelligent software and systems.

Artificial Intelligence Overview

AI refers to ‗Artificial Intelligence ‗which means making machines capable of performing
intelligent tasks like human beings. AI perform automated tasks using intelligence. The term
Artificial Intelligence has two key components:
1. Automation
2. Intelligence
Stages of Artificial Intelligence

Stage 1 – Machine Learning

is a set of algorithms used by intelligent systems to learn from experience.
Stage 2 – Machine Intelligence
These are the advanced set of algorithms used by machines to learn from
experience. Eg – Deep Neural Networks. Artificial Intelligence technology is
currently at this .
Stage 3 – Machine Consciousness
It is self-learning from experience without the need of external data.

Types Of Artificial Intelligence

ANI – Artificial Narrow Intelligence
It comprises of basic/role tasks such as those performed by chatbots, personal assistants like SIRI
by Apple and Alexa by Amazon.
AGI – Artificial General Intelligence
Artificial General Intelligence comprises of human-level tasks such as performed by self-driving
cars by Uber, Autopilot by Tesla. It involves continual learning by the machines.
ASI – Artificial Super Intelligence
Artificial Super Intelligence refers to intelligence way smarter than humans.
Difference between Nlp, AI, Ml, Dl & Nn
▪ AI or Artificial Intelligence
ilding systems that can do intelligent things.
▪ NLP or Natural Language Processing
Building systems that can understand language. It is a subset of Artificial
Intelligence.
▪ ML or Machine Learning
Building systems that can learn from experience. It is also a subset of Artificial
Intelligence.
▪ NN or Neural Network
Biologically inspired network of Artificial Neurons.
▪ DL or Deep Learning
Building systems that use Deep Neural Network on a large set of data. It is a subset
of Machine

Artificial Intelligence Industry In India – The Current Status

A news report published in October in The Economic Times said, ―Startups witness 108% growth
in funding in India in 2018.‖ The news report further mentioned that Artificial Intelligence was
among those domains which witnessed fastest adoption among industry sectors. Currently there
are about 400 start-ups working on AI and machine learning domains. About $150 million dollars
is invested in India‘s AI sector by private players alone and the number has been growing since
2016. Though there has been growth, India lags far behind countries like US and China in terms
of investment. With a copious pool of STEM talent and with growing population of youngsters,
India will be banking on AI for its economic growth and improvement in quality of life of its
citizens.
There are several start-ups that are based in cities such as Bengaluru, New Delhi, Mumbai and
Hyderabad which work on artificial intelligence principles to serve consumers better. Their
product range vary from multi-lingual chat bots to online shopping assistance and automated
consumer data analysis. The companies have been working in areas such as e-commerce,
healthcare, edtech, fintech etc. Though in their nascent stage, the performance of these companies
have been promising.
Benefits of Artificial Intelligence

• For the economy, business and industries: AI can benefit the economy by helping the
evolution of work better, not take their jobs.
• For humanity and society: AI enhances information throughput and efficiency, helping
people create new opportunities. People will have more time to learn,experiment and
explore.
• Expenditure pattern: AI can help in understanding the customer’s expenditure pattern And
customized plans can be offered to customers.
• Online banking and mobile banking: The online banking and mobile banking become
popular as a tool for 24/7 transaction. AI access customer data, such as detailed
demographics, website analytics and records of online and offline transactions, machine
learning can integrate and analyze information.
• Offer High security: AI offers high security to the banking sector;
• AI mobile applications can make the transaction quicker and safer.
• Understand the user’s behaviour and offer personalized experience through an app, banks
handle customer-oriented operations easily while reducing the cost of hiring additional
employees.

Limitations of Artificial Intelligence

• The production and maintenance of AI requires high costs.

• AI consists of advanced software programs that require regular updates to meet the needs
of the changing environment.
• AI might able to do, replacing adaptive human behaviour.
• AI makes the people lose their creative power, and can increase the unemployment rate.
• AI in wrong hands can be serious threat to human kind, if individuals start thinking
destructively, they can generate these advanced machines.
 Application of Artificial Intelligence
Application of AI in Banking Sector:

Artificial Intelligence (AI) is fast evolving as the go-to technology for companies across the world
to personalise experience for individuals. The technology itself is getting better and smarter day
by day, allowing more and newer industries to adopt the AI for various applications. Banking
sector is becoming one of the first adopters of AI. And just like other segments, banks are exploring
and implementing the technology in various ways.

The rudimentary applications AI include bring smarter chat-bots for customer service,
personalizing services for individuals, and even placing an AI robot for self-service at banks.
Beyond these basic applications, banks can implement the technology for bringing in more
efficiency to their back-office and even reduce fraud and security risks. Unsurprisingly, research
firms are bullish on the potential of AI in banking.
According to Fintech India report by PwC in 2017, the global spending in AI applications touched
$5.1 billion, up from $4 billion in 2015. There is a keen interest in the Indian banking sector as
well.
Advent of AI banking in India
According to Accenture’s recent Accenture Banking Technology Vision 2018 report, 83% of
Indian bankers believe that AI will work alongside humans in the next two years — a higher than
the global average of 79%. “93% bankers in India said they increasingly use data to drive critical
and automated decision-making. More partner-supplied customer data means a higher degree of
responsibility for banks. Yet, 77% Indian bankers agree that most firms are not prepared to
confront impending waves of corrupted insights from falsified data," said the report.

“AI is not new to India. Research institutions and universities have been working with various
AI technologies for decades, and especially in the area of social transformation. With enabling
technologies becoming a lot more accessible and inexpensive, AI is now becoming mainstream,
with large enterprises and start-ups looking at different opportunities. Our research shows that the
adoption of AI has the potential to add nearly $1 trillion to the Indian economy in 2035.
AI adoption is still in its nascent stages, and a lot more needs to be done to realise its full potential,"
says Rishi Aurora, managing director, financial services, Accenture.
“Application of AI and ML (machine learning) to different functions within the banking industry
has enabled them to offer a far more personalised and efficient customer service. By achieving
that, banks have also been able to gain better insights into their customers’ preference and
expectations from the bank.
Accordingly, automation of back-end workflows has shown better outcomes. According to various
industry reports, more than 36% of large financial institutions are already investing in such
technologies, and close to 70% are planning to in the near future," according to Darshan Shah,
MD, South Asia, LenddoEFL, a Singapore-based fintech company.

Not just customer support

State Bank of India, the largest bank in India, last year conducted “Code for Bank" hackathon to
encourage developers to build solutions leveraging futuristic technologies such as AI and
Blockchain into the banking sector. Private banks like HDFC Bank and ICICI Bank have already
introduced chat-bots for customers service. Some have even gone ahead with placing robots for
customers service. Last year, Canara Bank installed Mitra and Candi robots at some of its offices.
“Payment companies are using AI to offer personalised payment experience to consumers. By
applying AI and analyzing past payment patterns, payment systems can prompt the preferred
payment instrument which best suits a purchase at the time of checkout. Say a consumer avails
EMI option frequently for his big-ticket purchases, then the best EMI option is made available to
the consumer at the time of checkout. Such personalised consumer experiences drive up consumer
spending and creates stickiness to the product consumers are using," said Varun Rathi, cofounder
and COO, Happay, a Bangalore-based start-up focused on digital payment solutions. Pune-based
Persistent Systems’ chief architect, corporate CTO, Abhay Pendse

lists out some common uses of AI in banks:

➢ Fraud Detection: Anomaly detection can be used to increase the accuracy of credit card
fraud detection and anti-money laundering.
➢ Customer Support and Helpdesk: Humanoid Chatbot interfaces can be used to
increase efficiency and reduce cost for customer interactions.
➢ Risk Management: Tailored products can be offered to clients by looking at historical
data, doing risk analysis, and eliminating human errors from handcrafted models.
➢ Security: Suspicious behaviour, logs analysis, and spurious emails can be tracked down
to prevent and possibly predict security breaches.
➢ Digitization and automation in back-office processing: Capturing documents data
using OCR and then using machine learning/AI to generate insights from the text data
can greatly cut down back-office processing times.
➢ Wealth management for masses: Personalized portfolios can be managed by Bot
Advisors for clients by taking into account lifestyle, appetite for risk, expected returns
on investment, etc.
➢ ATMs: Image/face recognition using real-time camera images and advanced AI
techniques such as deep learning can be used at ATMs to detect and prevent
frauds/crimes
 IMPACT OF ARTIFICIAL INTELLIGENCE IN BANKING

Banks are using AI applications to recommend, forecast and execute tailored financial advice to
customers and also gain quick information on financial strategies, loan rates and the future market
progress.
❖ Customer Satisfaction: AI helps banks in providing personalized and more efficient
services to customers and in increasing revenue, faster decision making and having a good
customer relationship.
❖ Chatbots: Bot is the short form of Robot and Chatbot is an automated chat
❖ program that is either run automatically or follows a pre-determined path. Chatbot is a way
of using AI in the form of robotics in banking. Chatbots are available 24/7 and provide
efficient customer service.
❖ Personalized Financial Guidance: AI helps customers to make easy and quick financial
Decisions by way of up to date information on the current market structure as well as
provide suggestions on stocks and bonds in which customers can invest.
❖ Digital Wallets: Digital wallets provide digital money to the customers in purchasing any
item online either with a mobile phone or a computer.
❖ Interactive voice response systems (IVRS): An automated voice system which interacts
with customers, answer certain questions and routing calls to appropriate banking
departments and gives a pleasant experience to customers.
❖ Detecting Fraud: AI captures banking fraud by scanning through the vast transactional data
and tracking down any unorthodox activities or irregular behavior patterns. AI minimizes
banking fraud, helps in immediate action, protect security breaches and helps in powerful
machine learning.
❖ Improving customer support: Customer satisfaction impacts the performance of Banking
industry and shapes people’s perceptions of the financial institution’s brand and also
influences banks client targeting and retention efforts.
❖ Helps in knowing Creditworthiness: Banks still rely on one’s revenue and banking
transactions to determine whether they are creditworthy. AI loan decision systems are using
machine learning to observe the patterns and behaviours to determine whether a user can
really be a good customer or not.
❖ Better Customer Services: Using data gathered from users’ devices, AI-based relay
information using machine learning by redirecting users to the source. AIrelated features
also enable services, offers, and insights in line with the user's behaviour and requirements.
❖ Better regulatory compliance: AI tools usually rely on cognitive fraud analytics that
observe customer behaviours, track transactions, identify suspicious activities, and assess
the information of different compliance systems. AI is providing greater value to customers
employee productivity and ensuring higher regulatory compliance.
❖ Risk management: Mitigating fraud by scanning transactions for suspicious patterns in
real-time, measuring clients for creditworthiness, and enabling risk analysts with right
recommendations for curbing risk.
❖ Trading and Securities: Robotic Process Automation (RPA) helps in security settlement
through reconciliation and validation of information in the back office with trades enabled
in the front office. AI facilitates the overall process of trade enrichment, confirmation and
settlement.
❖ Credit Assessment: AI can analyse all data sources together to generate a coherent decision.
In fact, banks today look at creditworthiness as one of their everyday applications of AI.
❖ Portfolio Management: AI and machine learning-based technology platform disrupti
customized portfolio profiles of customers based on their investment limits, patterns and
preferences. Banking and artificial intelligence are at a vantage position to unleash the next
wave of digital disruption.
Thus, AI has transformed every aspect of the banking processes faster, money
transfers safer and back-end operations more efficient.
 CHALLENGES Of ARTIFICIAL INTELLIGENCE

Few key challenges faced by the banks are:

➢ Developing a thinking artificial systems are currently too difficult to achieve in practice.
➢ Wide spread use of AI raises a number of ethical, moral and legal issues that are yet to
be addressed.
➢ Benefit of AI technologies accrue to a few rich and wealthy owners of investment
capital.
➢ Possess high negative impact on traditional skills and increasing inequality.
➢ Difficulty in Customer segmentation.
➢ Lack of credible and quality data.
➢ Diverse language set.
➢ Lack of skilled engineers.
➢ Unavailability of people with right data science skills.
➢ Lack of clarity of business goals.
➢ No clear internal ownership of testing emerging technologies.
A wide implementation of a high-end technology like AI in India is not going to be without
challenges. From the lack of a credible and quality data to India’s diverse language set, experts
believe a number of challenges exist for the Indian banking sector using AI.
According to Accenture’s Rishi Aurora, “A key challenge is the availability of the right data. Data
is the lifeblood of AI, and any vulnerability arising from unverified information is a serious
concern for businesses. Imagine for example, the risks that could arise from KYC compliance AI
systems if the data sources are incorrect. Or consider the efficacy of a fraud detection AI system
without the right kind of data. Structured mechanisms for collecting, validating, standardizing,
correlating, archiving and distributing AI relevant data is crucial.”

“Data access and data privacy is a central aspect of any AI work banks do. These aspects will be
of paramount importance with introduction of regulations in Europe such as GDPR (General Data
Protection Regulation). GDPR regulation is currently applicable to European citizens, but India
and other countries have their own data privacy regulations.
Banks in India will have to build AI systems with GDPR and similar privacy regulations in mind,”
he said. Experts also have also stressed the need for more skilled engineers to drive the
segment.
“The biggest challenge is the scarcity of trained human resources; the existing workforce is not
familiar with latest tools and applications. Secondly, the AI technology is a big threat to redundant
employees in the banking sector. The mass adoption of AI may cause a grave unemployment
problem in the sector,” said Rachit Chawla , CEO of Finway Capital, a Delhi-based non-banking
financial company.
“One of the important challenges that is faced by Industry and not just banks in India is
unavailability of people with right data science skills. With only small number of good data
scientists available to do AI work, the industry needs to work with universities in India to develop
skilled data scientists as well as develop inhouse training programs to train employees on data
science skills.Also identification of right use cases for AI implementation with the help of domain
experts and data scientists can help banks in successful implementation of AI technologies for
banking functions,”
 MEASURES TO OVERCOME THE CHALLENGES OF AI

The challenges of AI can be overcome by:

✓ AI has the ability to streamline processes and boost productivity, but this can only be
achieved if banks utilise machines to their full potential.
✓ AI can find patterns, trends and associations, discover inefficiencies, learn and become
better, execute plans,
✓ AI can predict future outcomes based on historical trends,
✓ AI can inform fact based decisions.
✓ Articulate interactions between managers and technologists for common interpretation of
technology.
✓ Open up the discussion across bank, create boundaries, stimulate attractors, encourage
dissent and diversity, manage starting conditions and monitor for emergence.
✓ Duplicate data, log data and present it when needed. Leading banks should hire Chief AI
Officers while investing in AI labs and Incubators.
✓ AI-powered banking bots are being used on the customer experience front. Intelligent
personal investment products should be made available.
✓ Moving towards custom in-house solutions that leverage sophisticated ontologies, natural
language processing, machine learning, pattern recognition, and probabilistic reasoning
algorithms to aid skilled employees and robots with complex decisions.
✓ Decision support and advanced algorithms allow the automation of processes that are more
cognitive in nature.
✓ Incorporate advanced self-learning capabilities.
✓ Sophisticated cognitive hypothesis generation/advanced predictive analytics.
✓ Provide automated AI-powered customer service.
✓ Chatbots can be “employed” to act as customer service agents and servecustomers
continuously throughout a day. Routine and basic operations i.e. openingor closing the
account, transfer of funds, can be enabled with the help of chatbots.
 CONCLUSION

To conclude, Artificial Intelligence is gaining popularity day by day and banks are exploring and
implementing this technology in transforming the way customers are assisted. So, the future of
Artificial Intelligence in banking sector is very bright and with the introduction of AI, it makes it
even easier for a customer to do transactions from any place and at any time without waiting in
long queues at the bank. Hence, the aim of Artificial Intelligence is to provide personalized and
high quality customer satisfaction along with efficient and time saving services.

Artificial intelligence has many benefits to offer for the banking sector. Artificial intelligence is
changing business processes and customer-facing services in thebanking sector in India. It is also
being used to meet regulatory compliance, detect fraud, and assess individual creditworthiness.
The application of AI has the potential to create more efficient business processes, offer
personalized services, and assist in larger goals such as financial inclusion. There is no doubt that
the recent push towards digitalization is rapidly influencing the traditional banking models.
However, it has also exposed the institutions to increasing cyber security threats and
vulnerabilities. The banks are increasingly looking at emerging technologies such as block chain
and analytics in creating an active defense mechanism against cybercrimes
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Technology for Indian Commercial Banks, Indian Journal of Science and Technology, Vol 9

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4. Shivkumar Goel and Nihaal Mehta A Survey on the Role of Artificial Intelligence in FinTech,

International Journal of Innovative Research in Computer and Communication Engineering, Vol.

Issue 6, June 2017.V

5. Driving AI for Financial Services – Simularity Whitepaper

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Intelligence-in-Indian-banking- Challenges-and-op.html.

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