UPSC Prelims Practice Questions — Human judgment at risk as AI advances: RBI Governor cautions

Q1. Consider the following statements regarding the FIBAC banking conference and its 2026 edition: 1. The 2026 edition was themed 'Winning in the AI Era: The New Playbook for Indian Banks', whereas the preceding edition had been themed 'Charting New Frontiers'. 2. FIBAC is an annual conference organised jointly by FICCI and the Indian Banks' Association. 3. The inaugural address of the 2026 edition was delivered by a Deputy Governor of the Reserve Bank of India at Thanjavur. Which of the statements given above is/are correct?

  1. The 2026 edition was themed 'Winning in the AI Era: The New Playbook for Indian Banks', whereas the preceding edition had been themed 'Charting New Frontiers'.
  2. FIBAC is an annual conference organised jointly by FICCI and the Indian Banks' Association.
  3. The inaugural address of the 2026 edition was delivered by a Deputy Governor of the Reserve Bank of India at Thanjavur.
  • A. 1 only
  • B. 1 and 2 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q2. In his FIBAC 2026 inaugural address making the case for technology-led cost reduction, the RBI Governor placed Indian banks' operational costs at approximately what share of their income?

  • A. 27-29 per cent of income
  • B. 37-39 per cent of income
  • C. 47-49 per cent of income
  • D. 57-59 per cent of income

Q3. With reference to the framework recommended by the RBI's Committee on FREE-AI, consider the following: 1. Accountability 2. People first 3. Assurance 4. Fairness and equity Which of the above is/are correctly identified as guiding 'sutras' of that framework?

  1. Accountability
  2. People first
  3. Assurance
  4. Fairness and equity
  • A. 1 and 3
  • B. 2 and 4 only
  • C. 1, 2 and 4
  • D. 3 and 4

Q4. An RBI Deputy Governor, arguing in 2026 that a bank or NBFC cannot outsource responsibility to an algorithm, a vendor or a platform, enumerated how many major AI-related areas of concern for finance?

  • A. Three
  • B. Four
  • C. Five
  • D. Seven

Q5. Consider the following statements about the RBI's 2026 draft directions on managing model risk, including risks from AI/ML models, in regulated entities: 1. They bar regulated entities altogether from deploying externally sourced AI/ML models, permitting only models developed in-house. 2. They require a board-approved model risk management framework covering all models, whether developed internally, sourced externally or built on a hybrid basis. 3. They require models classified as high risk to be reviewed by the Risk Management Committee before deployment. Which of the statements given above is/are correct?

  1. They bar regulated entities altogether from deploying externally sourced AI/ML models, permitting only models developed in-house.
  2. They require a board-approved model risk management framework covering all models, whether developed internally, sourced externally or built on a hybrid basis.
  3. They require models classified as high risk to be reviewed by the Risk Management Committee before deployment.
  • A. 1 and 2 only
  • B. 1 and 3 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q6. Under the RBI's 2026 draft directions, what is the prescribed coverage of the board-approved model risk management framework that a regulated entity must put in place?

  • A. Only externally procured AI/ML models, since internally built models are covered by the entity's internal audit function
  • B. All models used by the entity, including AI/ML models, whether developed internally, sourced externally or hybrid
  • C. Only those AI/ML models that directly generate credit decisions for individual retail borrowers
  • D. Conventional statistical credit-scoring models, with generative AI tools used in customer support kept outside its scope

Q7. The board-approved gap assessment on frontier-AI cyber risks, together with AI-led adversarial testing, that the RBI sought with an action plan due by end-June 2026 applied to which set of institutions?

  • A. Only the public sector banks, private banks being left to their own board-determined timelines
  • B. Only non-banking financial companies placed in the upper layer under scale-based regulation
  • C. Only payment system operators authorised under the Payment and Settlement Systems Act, 2007
  • D. Banks and other regulated entities of the Reserve Bank generally

Q8. Among the risks flagged at FIBAC 2026, 'vendor concentration risk' in banks' AI adoption is best understood as which one of the following?

  • A. The risk that many lenders come to depend on the same small set of AI models or providers, so that one failure or flaw propagates across the system
  • B. The risk that a bank's technology contracts are largely denominated in foreign currency, exposing its books to exchange-rate movements
  • C. The risk that a single technology vendor acquires a controlling equity stake in a bank's subsidiary, breaching ownership and control norms
  • D. The risk that a vendor's engineering workforce is clustered in one city, exposing client banks to localised labour disruption

Q9. The RBI Governor's proposal for AI-integrated grievance redress 'from lodging to closure' in regulated entities is best described as which one of the following?

  • A. Replacing the internal ombudsman mechanism with an AI adjudicator whose determinations are final and not open to appeal
  • B. Embedding AI across the whole complaint lifecycle while retaining human oversight and staffing for customer service
  • C. Requiring every complaint to be routed first to the regulator's complaint management system, with entities acting only on cases forwarded to them
  • D. Deploying AI chiefly to auto-close complaints left unanswered beyond a prescribed period, without further human examination

Q10. Which one of the following correctly states the office and terms on which Sanjay Malhotra assumed charge at the Reserve Bank of India?

  • A. 26th Governor of the Reserve Bank of India, for a period of three years, effective 11 December 2024
  • B. 25th Governor of the Reserve Bank of India, for a period of five years, effective 11 December 2024
  • C. 26th Governor of the Reserve Bank of India, for a period of three years, effective 12 December 2025
  • D. 25th Governor of the Reserve Bank of India, for a period of three years, effective 10 December 2021