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In 2023, most companies were merely experimenting with AI, but in 2024, they started using it in real business cases. Several banks and financial companies are the first adopters of this latest technology and are already seeing positive results.

 

They are using AI for:

• Providing better customer service by using AI-powered chatbots
• Stronger fraud detection as AI can analyse huge amounts of transaction data to detect suspicious activities.
• Letting people trade using text-based trading platforms that allow users to trade using messaging apps.

According to the Infosys Bank Tech Index, Indian banks allocated an impressive 31% of their technology budgets to AI. This stat clearly shows how serious financial companies are regarding the use of AI to improve their efficiency. 

 

In this article, let’s gain more clarity and see how AI is reshaping the financial sector of India. 

Better personalised financial advice

AI studies a customer’s:

• Financial habits
• Income
• Spending patterns

 

Based on this analysis, it suggests customised savings and investment plans. For example, it can recommend the best way to save for a goal, like buying a house or planning retirement. 

 

Earlier, banks gave general advice, but now AI makes it specific for each person. This helps customers to make better financial decisions based on their real needs.

Growing use of AI-powered chatbots and virtual assistants

AI chatbots and virtual assistants provide 24/7 customer support. They answer common questions like:

• Checking balances
• Helping with loan applications
• Explaining banking services

 

This reduces the burden on human agents and frees up their time. They can now handle more complicated customer issues. Furthermore, AI chatbots respond instantly and work all the time. Thus, customers don’t have to wait in long phone queues for assistance. This makes banking services faster and more accessible. 

AI increases the operational efficiency of banks 

Banks and financial institutions are using AI to handle repetitive tasks, such as:

• Processing transactions
• Verifying customer details
• Answering basic inquiries

This automation speeds up operations and reduces errors. As a result, human employees can focus on more complex issues (like resolving disputes or offering expert financial guidance). Such a balance allows banks to serve more customers quickly while maintaining high-quality service.

AI detects fraud early

AI allows for real-time anomaly detection. Using AI, banks catch fraud as it happens by analysing transaction patterns in real time. If the AI system in place notices unusual activity (like sudden large withdrawals or payments to unknown accounts), it immediately flags them. 

 

This quick action prevents financial losses and protects customers. Instead of detecting fraud after it happens, banks can now stop it before any damage is done.

RBI’s MuleHunter.AI initiative

The Reserve Bank of India (RBI) has created an AI tool called MuleHunter.AI to track down “mule accounts.” These accounts are used by fraudsters to move stolen money. 

 

Here the AI system studies account activities and behaviors to detect suspicious patterns more accurately. This makes banking more secure by identifying fraudsters quickly and preventing them from using fake or manipulated accounts for fraud.

Reduced loan processing times

Earlier, getting a loan approved took 7-10 days. This happened because banks manually checked documents and financial details. Now, AI systems analyse customer data quickly, which has reduced the loan processing time to just 24-48 hours. 

AI quickly verifies customer details and financial history. A recent study showed that AI processes information 3-5 times faster than traditional methods. This makes it easier for customers as they do not need to visit branches multiple times. 

Also, banks can handle more applications, which increases their ability to serve more borrowers. 

Improved credit assessments

AI uses machine learning to evaluate a person’s creditworthiness. While doing so, it considers more factors than traditional methods. Some extra factors analysed are:

• Spending habits
• Digital payment history
• Social media activities

Such a deep analysis allows AI systems to precisely predict repayment risks. This assessment then helps banks to decide whether to approve a loan and at what interest rate. 

With better risk assessment, banks reduce loan defaults, while borrowers get fair loan decisions.

 

Better product recommendations

AI systems allow banks to understand customer preferences. It analyses their spending habits, savings, and financial goals. Based on this data, banks can suggest personalised financial products, such as the best:

• Savings plans
• Loan offers
• Investment options

Such smart recommendations make banking more customer-friendly, as people get the services they truly need. This improves satisfaction and engagement with the bank.

AI allows for integration with open banking

Open banking allows banks and NBFCs to work with third-party companies (such as fintech firms) to offer better services. Here, AI also plays a key role in integrating these services. Let’s see how:

1. Real-time data sharing

Through AI systems, banks can securely share customer data with authorised companies. This means if a customer applies for a loan or investment, the required financial details can be shared instantly, without delays. 

2. Automation of KYC

AI automates the Know Your Customer (KYC) process by scanning and verifying details instantly. This makes opening a new account or applying for a loan quicker and more secure through third-party applications.

3. Account aggregation services

The account aggregator system allows people to link all their financial accounts (bank accounts, FDs with NBFCs, loans) in one place. AI analyses this combined data and gives smart financial insights, such as:

• Spending patterns
• Savings tips
• Better investment options

 

This helps customers to get a clear and organised view of their finances.

Conclusion

AI is improving the banking sector by making it faster and more customer-friendly. It helps in:

• Offering personalised financial advice
• Reduces processing times for loan applications
• Giving better product recommendations
• Smooth open banking integration

Also, through the use of AI technologies, financial companies have now developed AI chatbots. They provide 24/7 support to customers and automate most of the common queries. 

Moreover, AI secures transactions in online marketplace by instantly detecting and preventing fraud. Thus, through AI, financial institutions can better serve customers and increase their satisfaction levels.