The role of AI in financial services has significantly increased over the last decade. As machine learning has matured, banks and insurers have expanded use cases from rule-based systems to real-time fraud detection, anomaly detection in claims processing, and market forecasting. The 2010s saw the rise of big data and deep learning, enabling institutions to leverage alternative data sources (e.g., social media, geolocation) and deploy NLP-powered chatbots like Erica. Today, Gen-AI is being used in advanced chatbots, automated report generation, and the creation of synthetic data sets for safer model training. It is estimated that this could add $200-340 billion annually to the global banking sector through productivity gains in compliance, risk management, and customer service In the Indian context, AI has the potential to improve financial inclusion, expand opportunities for innovation and enhance efficiency in financial systems. Yet, these systems pose certain incremental risks and ethical dilemmas. As these systems are being increasingly integrated into high-stakes applications such as credit approvals, fraud detection, and compliance, there is a need to ensure that their application is responsible and ethical, that harm does not arise from their use, and that their outcomes do not undermine public trust. In order to further responsible innovation in AI, while at the same time ensuring that consumer interests are protected, the Reserve Bank of India announced the establishment of a Committee to develop a framework for the responsible and ethical enablement of AI in the financial sector in its Statement on Developmental and Regulatory Policies dated December 6, 20244. Accordingly, the committee for developing the Framework for Responsible and Ethical Enablement of Artificial Intelligence in the Financial Sector (hereinafter referred to as the Committee or FREE- AI Committee) was constituted. Accordingly, the committee for developing the Framework for Responsible and Ethical Enablement of Artificial Intelligence in the Financial Sector (hereinafter referred to as the Committee or FREE-AI Committee) was constituted. The members of the committee are: i) Dr. Pushpak Bhattacharyya, Professor, Department of Computer Science and Engineering, IIT Bombay Chairperson ii) Ms. Debjani Ghosh, Distinguished Fellow, NITI Aayog; Independent Director, Reserve Bank Innovation Hub; and Ex-President, NASSCOM Member iii) Dr. Balaraman Ravindran, Professor and Head, Wadhwani School of Data Science and AI, IIT Madras Member iv) Shri Abhishek Singh, Additional Secretary, Ministry of Electronics and Information Technology, Government of India Member v) Shri Rahul Matthan, Partner, Trilegal Member vi) Shri Anjani Rathor, Group Head and Chief Digital Experience Officer, HDFC Bank Ltd. Member vii) Shri Sree Hari Nagaralu, Head of Security AI Research, Microsoft India (R&D) Member viii) Shri Suvendu Pati, CGM, FinTech Department, Reserve Bank of India Member Secretary. The terms of reference of the Committee are as under: i. To assess the current level of adoption of AI in financial services globally and in India. ii. To review regulatory and supervisory approaches on AI with a focus on the financial sector globally. iii. To identify potential risks associated with AI, if any, and recommend an evaluation, mitigation and monitoring framework and consequent compliance requirements for financial institutions, including banks, NBFCs, FinTechs, PSOs, etc. iv. To recommend a framework including governance aspects for responsible, ethical adoption of AI models/ applications in the Indian financial sector. v. Any other matter related to AI in the Indian financial sector. The Committee adopted a four-pronged approach. i. Stakeholder Engagement: The Committee held extensive deliberations and adopted a consultative approach to get insights on the emerging developments, ongoing innovations, stakeholder needs, challenges and risks in the financial sector on account of the use of AI. Interactions were also conducted with stakeholders, including presentations from the RBI departments, consultants, and financial sector entities. Details of the interactions are provided at Annexure I and II. ii. Survey and Interactions: Two targeted surveys were carried out, covering Scheduled Commercial Banks (SCBs), Non-Banking Financial Companies (NBFCs), All India Financial Institutions (AIFI) and FinTechs. Follow-up interactions were conducted with select Chief Digital Officers / Chief Technology Officers (CDOs/CTOs) to understand the extent to which AI had been adopted in the Indian financial services industry and any associated challenges. iii. Review of global developments and literature: The Committee also examined the internationally published literature, global developments, extant regulatory frameworks/ approaches adopted in other jurisdictions and views of global standard-setting bodies (SSBs) and international organisations (IOs). iv. Analysis of extant regulatory guidelines: Finally, the Committee analysed the extant regulatory framework applicable to the REs, such as those related to cybersecurity, data protection, consumer protection, and outsourcing, to the extent they capture the AI-specific risks and concerns. In addition, based on the stakeholder engagement and survey feedback, the Committee acknowledged the need to place specific emphasis on fostering AI innovation and treated it as a critical reference point in defining its approach.