Banking on intelligence: How AI is powering the next evolution of financial services
By Sunil Pandita Senior VP and Head of Business, South Asia
AI is transforming risks, reshaping customer journeys and redefining operations for banks and NBFCs alike. Players who stay agile and tactically adopt AI, LLMs, and agentic workflows stand a greater chance of winning the game.
In the late-1980’s, the Security Pacific National Bank deployed a system to detect potential fraud and unauthorised debit card transactions, marking the first use of artificial intelligence (AI) in day-to-day banking activities for measurable benefits. Today, financial institutions must credit AI for much more, as it doesn’t just process—it perceives, predicts, and acts.
AI is transforming how financial institutions serve customers, secure transactions, and scale operations—redefining the future of banking and NBFCs alike. Across India’s financial landscape, banks and NBFCs are scaling Generative AI (GenAI), as it offers the potential to boost productivity by a staggering 46% by 2030, as per a 2025 EY report on AI’s impact on banking operations in India. The report states that over 40% of financial institutions are investing heavily in AI and GenAI initiatives, showing the momentum is already here.
And they have reason to pursue technology adoption with speed. As AI enhances personalisation, chatbots, and fraud detection, the next wave of intelligence—Agentic AI—is quietly taking root. By enabling real-time decision-making and autonomous action, it triggers an era where AI would be able to autonomously enhance efficiency, moving beyond automation.
Pivotal Applications of AI in Banking and NBFCs
AI is reshaping the financial landscape, enhancing how banks and NBFCs engage with customers, managing risk, and making critical decisions. From intelligent virtual assistants to adaptive systems that learn and evolve, financial institutions are embracing AI to deliver faster, smarter, and more intuitive services. Here are some key functions where AI is being leveraged successfully.
Customer Service and Engagement
AI is enhancing personalisation in banking by anticipating customer needs and offering proactive support through virtual assistants. In India, banks and NBFCs are leveraging AI to optimise operations, provide 24/7 customer support, automate sales, and slash operational costs by up to 90%. Various AI models enhance engagement and retention.
Chatbots powered by LLMs handle basic queries like balance inquiries and provide advanced support such as financial literacy advice. It also enhances digital submission of forms and self-service portals. Agentic AI takes this further by enabling virtual assistants to autonomously update accounts, process transactions, and make real-time decisions. When a customer service request is initiated, the AI agent analyses information, creates insights, and suggests the best next steps instantly, executing the instructions across several asynchronous agents to expedite resolution.
Fraud Detection and Risk Management
The rising risk and fraudulent activities – from fake documents to synthetic IDs and verification errors – demand stricter regulations and better digital guardrails to protect customers. The reported bank fraud cases in India surged by 166% during FY 2023-24, crossing 36,000 incidents as per RBI’s latest Annual Report.
In this fast-evolving war against fraud, AI and machine learning algorithms have proved to be effective weapons by cross-checking KYC details and analysing large datasets to identify irregularities and flag transactions for further examination. AI uncovers document tampering while simulating market scenarios for risk decisions and recognising repeat fraud tactics.
For risk control, AI spots potential defaulters early by scrutinising credit histories and spending behaviors. Agentic AI goes a step further with real-time action as it instantly flags suspicious activity, triggers alerts, and adapts its present criteria to evolving fraud tactics. Working intuitively, the agents prevent frauds by foreseeing fraud risk, making context-aware decisions and autonomously blocking transactions.
Personalised Financial Services
The digital banking era is focused on personalisation, where each user expects unique experiences. AI is transforming personalised banking by analysing customer data like income, spending habits, and investment goals to offer tailored financial solutions. Today, 82% of Indian banks use AI for personalised financial products, driving 34% higher conversion rates than traditional methods (RBI, ICRA 2024).
AI is transforming financial services by making underwriting smarter and decisions data-backed. GenAI provides customised recommendations for budgeting, savings, and investment while learning from transaction patterns and behavior to enhance engagement. Agentic AI further enhances personalisation by autonomously managing portfolios, and continuously adjusting strategies based on market fluctuations and customer behavior. The agents act as financial coach to optimise spending and savings in real-time, strengthening customer loyalty and service efficiency.
Compliance and Regulatory Reporting
With constantly evolving regulations, financial institutions need stringent compliance measures to avoid penalties and disruptions. AI steps in as a powerful ally, automating compliance tasks to slash manual workloads and boost reporting accuracy. AI agents digest regulatory data, churn out compliance reports, and handle KYC/AML validations—cutting errors while speeding up the process.
While implementing the changes, financial institutions must comply with data localisation mandates and ensure AI solutions are hosted within India. To mitigate data privacy risks, personally identifiable information (PII) is anonymised, and AI is deployed within Virtual Private Cloud environments. AI systems automate document verification, ensuring consistent validation and improving audit readiness. Agentic AI takes it further, tracking regulatory changes in real time and auto-adjusting internal processes like a 24/7 digital compliance officer, keeping risks low and governance tight.
Loan and Credit Underwriting
Considering the emergence of new risk factors and load of documents that underwriters must assess, making accurate decisions with speed is a challenge. Data-based evaluation, enabled by AI comes to the rescue. A recent report states that the market size of AI in credit-scoring is set to grow at a robust pace of 25.9% between 2024-2031, and the BFSI industry will be the most significant beneficiary of this growth.
AI-enabled Underwriting Workbench is an immensely helpful tool for streamlining documentation and offering a single-window interface. GenAI further enhances credit assessments by analysing alternative data—like transaction history, social media, and employment records—offering a comprehensive view of an applicant’s financial health. This enables banks to make inclusive, risk-aware lending decisions.
Agentic AI further calibrates the process by automating tasks like application assessments and borrower information verifications, enabling near-instant loan decisions with minimal human intervention.
Summing it up
AI is redefining the future of financial services, helping them shift from being reactive to predictive. Banks will soon operate as intelligent ecosystems—where AI doesn’t just assist but anticipates customer needs in real time. From hyper-personalised experiences to real-time fraud detection and intelligent lending, banks and NBFCs are evolving fast with AI.
As AI continues to evolve, the financial sector will move toward autonomous banking—where routine operations, customer interactions, and decision-making are fully automated, secure, and seamlessly integrated into users’ digital lives. The real challenge lies in blending innovation with trust, speed with ethics, and automation with human oversight. The future of finance isn’t just AI-powered; it’s AI-partnered. For institutions ready to lead with responsibility and vision, the opportunity is massive. The question now is: how boldly and wisely will we shape what comes next?
