ARTIFICIAL INTELLIGENCE: ETHICAL AND GOVERNMENT REGULATORY SYSTEM IN THE INDIAN BANKING SECTOR

Abstract

The rapid advancement of full autonomy has led to the widespread integration of Artificial Intelligence into various social activities, raising significant ethical concerns, including bias, accountability, privacy issues, and the socioeconomic impact of automation. AI systems are known to be biased and can independently amplify instances of unfair treatment, particularly affecting marginalized groups. This issue arises not only because AI-powered decision-making systems operate autonomously, without human intervention but also due to the complexity of determining liability when decisions lead to harm, making accountability subjective and difficult to assign. Despite these ethical challenges, AI is increasingly being utilized to facilitate e-commerce and digital transactions, bringing forth critical regulatory and ethical concerns, particularly in managing AI-driven financial transactions. In light of this fact, it is imperative to create moral guidelines and legal frameworks to guarantee the responsible deployment of AI technologies, ensuring that AI systems operate with transparency, fairness, and a commitment to safeguarding individual rights and freedoms. The absence of hidden biases or opaque decision-making processes is crucial for maintaining public trust and ensuring ethical AI implementation. This chapter focused of the current state of digital transformation in India and the expanding role of AI in banking sector. It also explores the ethical and regulatory challenges of AI in digital transactions. Using secondary data, the study highlights the need for a balanced approach that harnesses AI’s potential while ensuring transparency, fairness, and robust data protection. Addressing these ethical concerns is vital for building trust and ensuring AI's responsible use in financial risk assessment and fraud detection.