INDIA Law and Practice Contributed by: Shilpa Mankar Ahluwalia, Purva Anand and Ansh Jain, Shardul Amarchand Mangaldas & Co
based tools to improve customer experience, espe - cially in the areas of product identification and match - ing, background and credit verification checks and customer grievance redressal. While there are currently no comprehensive regula - tions specifically addressing AI in India, the financial sector regulators and the GOI have initiated steps to address the adoption of AI. The GOI issued an advisory dated 15 March 2024, setting out due diligence norms regarding AI and other generative software to all intermediaries and platforms under the 2000 Information Technology Act (the “IT Act”). The advisory imposes several due diligence obligations on intermediaries to ensure responsible use of such technologies. These include: • ensuring that AI or other generative software does not facilitate the transmission of unlawful content; • clearly labelling content produced by AI tools if it is unreliable or still undergoing testing; and • adding a permanent unique metadata tag to out - puts that could potentially spread misinformation or generate deepfakes, enabling identification of the content’s originator. The Report on AI Governance Guidelines Develop - ment dated 6 January 2025, released for public con - sultation by a sub-committee of the GOI, provides insight into the future regulations/legislation governing AI in India. It suggests an activity-based regulations approach and that effective enforcement of exist - ing legislations can assist in mitigation of most AI- associated risks (though specific legislations may be required in areas such as copyright laws). The RBI’s committee to develop a Framework for Responsible and Ethical Enablement of AI released its report on 13 August 2025, marking the RBI’s first com - prehensive attempt to chart a roadmap for responsible AI adoption in finance. The FREE-AI Framework is built around seven guiding principles (termed “Sutras”): • trust is the foundation; • people first; • innovation over restraint; • fairness and equity;
• accountability; • understandable by design; and • safety, resilience and sustainability. These principles anchor 26 actionable recommenda - tions organised across six strategic pillars: • infrastructure; • policy; • capacity; • governance; • protection; and • assurance. The first three pillars focus on enabling responsible innovation through sector-wide data infrastructure, AI innovation sandboxes, indigenous financial AI models and capacity building, while the latter three address risk mitigation through board-level governance, con - sumer protection mechanisms (including disclosures, explainability requirements and grievance redressal) and independent assurance through audits and impact assessments. The FREE-AI Framework also addresses the growing reliance on third-party AI providers, clarify - ing the application of the RBI’s outsourcing guidelines and recommending AI-specific contractual safeguards around bias, accountability and data use. Significant steps are expected to be taken towards developing a regulatory framework for addressing AI usage in India over the next 12 months. Regulation of stablecoins and crypto-assets India’s stance on stablecoins and crypto-assets is expected to evolve over the next 12 months. The GOI’s 2025–2026 Economic Survey has indicated consider - ation of a stablecoin regulatory framework, signalling a shift from pure caution to calibrated engagement. If introduced, a domestic framework is likely to be com - parable to counterparts in other countries and include licensing requirements for stablecoin issuers, reserve backing norms requiring full collateralisation in high- quality liquid assets, redemption rights at par, and know-your-customer (KYC) obligations aligned with existing AML requirements under the 2002 Prevention of Money Laundering Act (PMLA). Private initiatives such as the proposed Asset Reserve Certificate (ARC), an INR-backed stablecoin developed by Polygon for
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