Artificial Intelligence (AI) is rapidly changing India’s financial sector. It is making banking more inclusive and secure. From fraud detection to credit approvals, AI-driven solutions are helping banks and fintech firms to:
- Improve customer experiences
- Reduce risks
- Boost financial accessibility
A recent study showed that AI’s growth is expected to increase from $1.17 billion (Rs. 9711 crores) in 2023 to $4.96 billion (Rs. 42,978 crores) by 2028 at an annual growth rate of 33.50%. With more usage of AI, we can expect even more innovative financial solutions in the future. In this article, let’s gain more clarity and check out 10 ways how AI is benefitting India’s financial sector.
1. Promotes Agriculture Finance
Farmers often struggle with unpredictable weather and fluctuating crop prices. This limits their access to financial services. AI-powered tools provide real-time data on:
- Market prices
- Weather conditions
- Soil health
Several platforms have already started using AI to help farmers secure loans. Moreover, AI-powered chatbots also offer guidance on government schemes and subsidies. This allows farmers to plan their finances better and reduce risks.
2. Fraud Detection and Risk Management
Online banking frauds and scams are on the rise in India. In the first half of the fiscal year 2024, India reported 18,461 cases of banking fraud worth Rs. 21,367 crore. This marks a substantial 800% increase from the previous year.
However, now, AI is increasingly being used to prevent fraud. AI analyzes thousands of transactions in real-time and identifies unusual activity, like a sudden large withdrawal from an unfamiliar location. If something looks suspicious, the system alerts the bank and customer immediately.
3. Credit Scoring and Loan Approval
Traditional credit scores rely only on past bank transactions and loan repayments. AI expands this by considering:
- Utility bill payments
- Online shopping habits
- Employment history
Such an evaluation of creditworthiness is helpful for people without a formal credit history, like students or self-employed individuals. Several lenders are now using AI to approve loans quickly (sometimes within minutes).
4. Helps in Digital Transformation
Banks and financial institutions are using AI to automate tasks and reduce paperwork. Modern AI-powered software now handles:
- Customer queries
- Document verification
- Loan processing
This reduces the workload for human employees and lowers costs for banks.. This also makes services faster for customers.
5. More Partnerships and Innovation
Traditional banks are collaborating with fintech startups. Over 65% of fintech CEOs prioritise partnerships with traditional banks. Through this association, banks are bringing the latest technology into financial services. Many banks have even built their own AI tools to improve operations.
Moreover, some AI-driven investment platforms are changing the way people invest. This makes trading easier and more accessible. By working together, banks and fintech companies are creating better solutions for customers.
6. Leads to Data-Driven Decision-Making
AI helps financial institutions by:
- Analysing large amounts of data quickly
- Studying transaction patterns
- Observing customer spending habits
- Checking the latest market trends
For example, AI can predict when customers might need a loan and offer it at the right time. It can also identify customers at risk of defaulting and suggest solutions before a crisis happens.
7. Helps in Bookkeeping and Offers Strategic Insights
AI simplifies financial management for businesses. AI-powered accounting software (like Zoho Books and QuickBooks):
- Automates bookkeeping
- Tracks expenses
- Generates financial reports
AI also helps founders and business owners analyse cash flow and identify financial risks. This gives companies a competitive advantage. From such an innovation, startups and small businesses benefit the most.
8. Makes Predictive Analysis
AI can forecast financial trends and market shifts by analysing past data. This helps both businesses and investors. For example, AI can predict stock market fluctuations. This allows investors to adjust strategies.
Moreover, insurance companies use predictive analytics to assess risks and set fairer premiums. AI also helps banks forecast customer demand for loans or new products.
Such predictive analytics is becoming a game-changer as it allows companies to be proactive instead of reactive.
9. Enhanced Customer Experience
AI helps financial companies understand what customers need. It analyses:
- Past transactions
- Browsing behaviour
- Customer references (to suggest products like loans, credit cards, or investment plans)
Also, it leads to personalised marketing, where customers receive relevant offers instead of random advertisements.
10. Microfinance and Lending
Many people in India (especially in rural areas) don’t have traditional credit histories. AI solves this problem by analysing alternative data like:
- Mobile phone usage
- Shopping behaviour on online marketplace
- Social media activity
Through such an analysis, it assesses the creditworthiness of loan applicants. Several banks and NBFCs have started using AI to determine who can repay a loan.
Based on the information gained, they offer financial services to underserved people. This expands access to credit and allows more people to start businesses or invest in education.
Conclusion
AI is transforming India’s financial sector. It is making banking safer and more inclusive. From helping farmers with financial planning to detecting fraud and improving loan approvals, AI is solving real-world problems.
It is also making banking faster by:
- Automating processes
- Reducing paperwork
- Improving customer service (through personalised recommendations).
With AI-powered insights, banks, NBFCs, and fintech companies can offer better financial products and reach more people who were previously excluded from banking services.
