New Delhi, June 25 -- The Reserve Bank of India (RBI) on Wednesday released draft guidance on regulatory principles for model risk management, citing the rapid adoption of artificial intelligence, machine learning, and automated decision-making systems across the financial sector.

The central bank said that while such technologies improve efficiency and customer experience, they also introduce risks that, if left unmanaged, could lead to inaccurate outcomes, financial losses, operational disruptions, compliance failures and consumer harm.

The guidance applies to commercial banks, small finance banks, payments banks, cooperative banks, non-banking financial companies, all-India financial institutions, asset reconstruction companies and c...