Indian Overseas Bank LBO Mock 02 – Question 61

Directions (Q1-Q10): Read the following passage carefully and answer the questions that follow.

The rapid integration of Generative Artificial Intelligence (GenAI) and Machine Learning (ML) algorithms is fundamentally transforming the risk management landscape within the Indian banking industry. As digital transactions through UPI, mobile banking apps, and net banking surge to record highs, public sector banks including Indian Overseas Bank are deploying sophisticated AI-driven predictive models to mitigate financial fraud in real time. Traditional rule-based fraud detection systems, which relied on static parameters, often resulted in high false-positive rates and failed to detect novel attack vectors such as deepfake voice cloning, synthetic identity theft, and sophisticated phishing campaigns.

Modern AI systems continuously analyze multi-dimensional behavioral biometrics, device fingerprinting, geolocation anomalies, and transaction velocity. When an unusual transaction pattern is flagged—such as a high-value transfer initiated at midnight from an unrecognized IP address—the AI engine automatically triggers step-up authentication or temporarily freezes the transaction pending customer confirmation. Furthermore, natural language processing (NLP) models monitor customer service channels and online communications to detect social engineering scams before funds leave the victim’s account.

However, the adoption of Generative AI also poses new regulatory and ethical challenges. Algorithmic bias, lack of model explainability (‘black box’ risk), and potential data privacy breaches require robust governance frameworks. The Reserve Bank of India has repeatedly emphasized that while AI tools enhance operational efficiency and fraud defense, final accountability for credit underwriting and risk assessment remains with human banking officers.

Question 1: What is the primary purpose of the author in writing this passage?

(a) To condemn the adoption of artificial intelligence in financial institutions.

(b) To discuss the advancements brought by GenAI in banking alongside its associated operational and regulatory challenges.

(c) To compare traditional rule-based algorithms with credit scoring models of MSMEs.

(d) To criticize the Reserve Bank of India for over-regulating digital payment channels.

(e) To argue that deepfakes will completely eliminate customer trust in digital banking.

The passage provides a balanced overview of how GenAI enhances banking operations (fraud prevention, credit modeling) while highlighting vulnerabilities like deepfakes and regulatory challenges like model explainability.