# BREAKING: RBI Issues Draft Model Risk Management Framework for Banks
The Reserve Bank of India has published draft guidance on model risk management principles, marking a significant regulatory shift for financial institutions operating in India. The framework targets all commercial banks, primary dealers, and systemically important non-banking financial companies, requiring them to establish comprehensive governance structures for managing risks associated with quantitative models used in credit decisions, pricing, and risk assessment.
The guidance mandates independent model validation, clear documentation standards, and board-level oversight of model performance. Institutions must implement ongoing monitoring systems and maintain inventories of all material models. The RBI has opened the draft for public consultation through March 2025, with implementation expected in 2026.
Banks heavily reliant on algorithmic credit scoring, automated trading systems, and AI-driven risk models face substantial compliance costs and potential operational adjustments. Market participants should anticipate increased scrutiny of existing model frameworks and possible delays in deploying new quantitative tools.
**
FXnCO Insight
** Indian financial institutions should immediately audit their current model inventories and begin budgeting for enhanced validation infrastructure before the 2026 implementation deadline.
Source: Finextra