BFSI IT Summit

Genrative AI

Generative AI In Finance

Introduction

As Indian generative AI has been progressing, let’s take a look at its impact on the financial sector and how it is boosting the Indian economy. Generative artificial intelligence (AI) in India is rapidly advancing across various sectors, leveraging technologies like generative adversarial networks (GANs) and variation autoencoders (VAEs). This technology holds promise in enhancing creativity, enabling data synthesis, and transforming industries such as art, entertainment, and content creation. With increasing adoption, India is poised to harness generative AI’s capabilities to drive innovation and efficiency across its diverse economic landscape.

How Gen AI is Boosting the Indian Economy

The generative artificial intelligence market is driven by funding amounts of key players like OpenAI, NVIDIA Deep Learning, and Google (Magenta, DeepDream). Market indicators include overall market size and industry-specific metrics, reflecting rapid growth and innovation in AI technologies globally.

India’s rapidly growing economy aims to become the world’s third-largest by 2027, with generative AI playing a vital role in achieving this goal. Forecasted to potentially add $359-438 billion to GDP by 2030, Gen AI could boost annual growth by 0.9-1.1% over seven years. Key sectors such as business services, finance, transportation, education, retail, and healthcare stand to benefit most from AI’s productivity and efficiency enhancements. Essential to unlocking this potential is increased investment in AI research, education, and regulatory frameworks that ensure safety and inclusivity.

How Gen AI is Enhancing the Financial Sector

Generative AI in financial services promises significant growth, potentially increasing sectoral GVA by 22%-26%, adding $66-80 billion by 2030. It enhances underwriting, fraud detection, and risk management through AI-driven bots and real-time analytics. Gen AI also improves customer interfaces, boosts operational efficiency, and transforms banking with AI-driven chatbots, virtual assistants, and SEO-optimized content. It streamlines knowledge management, and software development, ensures compliance, and enables personalized customer profiling using synthetic data.

What are the use cases of Gen AI in banking

The following use cases highlight how generative AI is transforming banking operations by improving efficiency, accuracy, and customer engagement while addressing specific challenges in the financial sector.

1. Credit Risk Assessment:

Generative AI betters credit risk assessment by analyzing vast datasets to create precise credit scoring models. This improves loan approval rates and enables banks to serve a broader customer base. Early Warning Systems (EWS) in banks and financial institutions use AI for real-time monitoring. They analyze external data like news, social media, and regulatory filings to detect risks. Credit Risk Models then update Credit Scores based on EWS data, proactively managing credit risk exposure.

2. Chatbots for Customer Service:

 AI-driven chatbots provide 24/7 customer support with natural language understanding, handling tasks like account inquiries and transactions efficiently. They improve customer satisfaction and operational efficiency. AI-driven chatbots from HDFC Bank, ICICI Bank, Bank of America’s “Erica,” and HSBC’s “Amy” provide 24/7 customer support with natural language understanding, enhancing operational efficiency and satisfaction. SBI’s chatbot, SIA, similarly improves customer service through AI technology.

3. Fraud Detection: 

Generative AI-powered systems monitor transactions in real time to detect and prevent fraudulent activities. They adapt to new data, reducing false positives and ensuring secure banking transactions. McKinsey’s generative AI virtual expert provides tailored answers and can scan transactions for red flags, influencing risk decisions and detecting fraud in real time.

4. Algorithmic Trading:

AI analyzes market data to generate algorithms for automated trading decisions. This improves trading efficiency, minimizes risks, and enables banks to explore new trading strategies. Banks like South Indian Bank and ICICI are increasingly interested in automating investments using AI in banking services.

5. Gen AI Chatbots for Personalized Marketing: 

AI analyzes customer data to personalize marketing campaigns and product recommendations. This increases engagement, drives conversions, and enhances customer loyalty. SBI, India’s leading public sector bank, is advancing with NextGen Data Warehouse and Data Lake implementations. They are exploring new partnerships with fin-techs and NBFCs for co-lending. The upcoming YONO app version will focus on AI/ML-driven hyper-personalization, enhancing customer experiences with innovative product offerings.

6. Wealth Management and Portfolio Optimization: 

AI analyzes financial data to recommend optimal investment strategies and asset allocations in real time. This improves client satisfaction and operational scalability for wealth management services. Indian fin-tech companies like Paytm Money and Zerodha use Generative AI to offer personalized investment recommendations based on individual risk profiles and financial goals.

7. Anti-Money Laundering (AML):

Generative AI analyzes transaction data and customer profiles to detect suspicious activities and comply with regulatory requirements. It enhances accuracy in identifying money laundering risks and maintains trust with regulatory bodies. HSBC’s “Ava” system uses generative AI to detect money laundering with 65% higher accuracy than traditional systems. Prudential employs generative models from CognitiveScale to analyze unstructured data, improving risk assessment accuracy by up to 50%.

Conclusion

Gen AI adoption in Indian banking faces challenges like misinformation risks, data security concerns, infrastructure demands, and copyright issues. Policymakers must establish regulatory frameworks ensuring fairness, transparency, and data privacy while promoting innovation. Sandbox testing and compliance with AI regulations are crucial for safe implementation. Organizations must enhance awareness of risks, establish clear guidelines, align with regulations like the EU AI Act, and develop expertise in risk management and compliance for effective deployment.

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