What happened
On 24 June 2026, the Reserve Bank of India (RBI) released draft 'Guidance on Regulatory Principles for Model Risk Management, 2026,' open for public comment until 24 July 2026. The guidance is applicable to all RBI-regulated entities: banks, NBFCs, financial institutions, asset reconstruction companies, and credit information companies. It mandates: Board-approved Model Risk Management Frameworks (MRMF); independent model validation; risk-based model tiering; enterprise-wide governance; and — notably for AI/ML — 'kill-switch' mechanisms to take malfunctioning models offline. It replaces 2002-era credit risk model guidance and explicitly encompasses AI/ML models across the full lifecycle (development, validation, approval, deployment, monitoring, change management, business continuity, decommissioning).
Why it matters
This is one of the most comprehensive AI/ML model risk governance frameworks issued by any central bank, and the first to explicitly mandate a 'kill-switch' for AI models as a regulatory requirement. It elevates AI model risk to Board-level accountability across the entire Indian regulated financial sector. As a draft open for comment, it signals the imminent direction of binding RBI rules governing AI in Indian banking and finance — a jurisdiction covering one of the world's largest financial systems.
Action needed
Submit comments to RBI by 24 July 2026; begin gap analysis against MRMF requirements; establish Board-level AI model governance and risk appetite statements; design or audit kill-switch mechanisms for production AI/ML models; plan independent model validation processes for AI systems