The Reserve Bank of India has issued a new regulatory framework requiring all fintech platforms to implement explainable AI (XAI) in their lending algorithms by March 2027. The move is aimed at curbing algorithmic bias in digital lending, which has grown into a ₹4.2 lakh crore market.

Under the new guidelines, any platform using AI or ML models for credit decisions must provide borrowers with a clear, human-readable explanation of why their application was approved or rejected. The RBI has also mandated that models be audited by certified third-party AI auditors annually.

“We have seen cases where algorithms have systematically disadvantaged certain demographics,” said RBI Deputy Governor M. Rajeshwar Rao. “Transparency in AI-driven financial decisions is not optional — it’s essential for financial inclusion.”

The fintech industry has had mixed reactions. Large players like CRED, Slice, and KreditBee welcomed the framework, arguing it would weed out predatory lenders. Smaller startups, however, have raised concerns about the compliance costs, estimating that implementing XAI and audit processes could cost between ₹2-5 crore annually.

India’s Digital Lending Association has requested a 12-month extension to the deadline, citing the complexity of retrofitting explainability into existing models.