The Role of AI & ML in Transforming Credit Risk Management in Banking

Authors

Sandeep Yadav

Abstract

Credit risk management is a cornerstone of the banking industry, where precise assessment and proactive mitigation of credit risk are essential to maintain financial stability and regulatory compliance. In recent years, Artificial Intelligence (AI) and Machine Learning (ML) have revolutionized this field, providing advanced methods for evaluating, predicting, and managing credit risk more accurately and efficiently. This paper examines the transformative role of AI and ML in credit risk management, detailing how these technologies enhance traditional risk assessment models and support real-time decision-making. Leveraging large volumes of data, AI and ML algorithms can identify hidden patterns, perform complex risk profiling, and generate more reliable predictions of borrower defaults. Key applications, such as credit scoring, early warning systems, and customer segmentation, are explored to demonstrate how these technologies streamline risk management workflows, reduce operational costs, and enable a more tailored approach to credit analysis. Additionally, the study discusses challenges, including data quality, model interpretability, and regulatory compliance, which are critical for the successful integration of AI and ML in banking. Through case studies and recent advancements, the paper highlights the potential of AI-driven solutions to improve predictive accuracy, foster innovation, and build resilience in credit risk management frameworks. This research concludes that AI and ML are reshaping the landscape of credit risk management, enabling banks to make data-driven decisions with unprecedented precision and agility.

Keywords

Credit Risk Management, Artificial Intelligence (AI), Machine Learning (ML), Banking, Credit Scoring, Risk Assessment, Predictive Modeling, Default Prediction, Early Warning Systems, Customer Segmentation, Model Interpretability, Regulatory Compliance, Financial Stability, Data-Driven Decision Making, Operational Efficiency

The Role of AI & ML in Transforming Credit Risk Management in Banking. Sandeep Yadav. 2020. IJIRCT, Volume 6, Issue 1. Pages 1-9. https://www.ijirct.org/viewPaper.php?paperId=2411101