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∙ The Reserve Bank of India is closely examining the risks that can emerge from model-based algorithm lending, which led to the surge in unsecured loans,
About Model-based algorithm lending
∙ Algorithmic models are powered by artificial intelligence and machine learning
∙ It has not only reduced operational costs but has also expanded the outreach of financial services providers.
∙ It often operates as ‘black boxes’, making it challenging to decipher the rationale behind their decisions.
ο Such model-based lending could lead to a potential crisis.
∙ Therefore Management, boards of directors, and audit committees should ensure robustness in algorithms and gauge the possible risks these models could create.
∙ The Reserve Bank’s supervisory systems have been recalibrated to attune them to the dynamics of the financial sector in a forward-looking approach so as to smell possible distress early.
