Indian banks are facing an urgent mandate to dramatically enhance their data privacy infrastructure, with a new report by Protiviti stressing the critical need to embrace Artificial Intelligence (AI) and privacy-enhancing technologies (PETs) to comply with the impending Digital Personal Data Protection Act (DPDP Act). The report, titled "Navigating DPDPA in Banking: Compliance, Impact, and AI-Powered Strategies for Futureproofing," unveiled at the 4th IBA CISO Summit 2025, warns that compliance is not a "one-time project" but a continuous, evolving imperative.

The DPDP Act, India's most comprehensive data protection law to date, will have a far-reaching regulatory and operational impact on the banking sector, given the immense volume and sensitive nature of personal data they handle. The Protiviti report highlights that most Indian banks are likely to be classified as "Significant Data Fiduciaries (SDFs)" under the Act. This designation brings with it elevated obligations, including mandatory Data Protection Impact Assessments (DPIAs), ensuring algorithmic transparency, conducting regular data audits, and appointing a dedicated Data Protection Officer (DPO).

According to the report, banks must fundamentally re-engineer their critical functions to align with "privacy-by-design" principles. This means integrating privacy considerations from the very initial stages of developing new products, services, and processes. Specific areas of focus include Know Your Customer (KYC) procedures, fraud detection systems, and customer consent management. The report also identifies unique privacy risks inherent in the banking sector, such as algorithmic profiling and third-party data sharing complexities.

A key recommendation is the strategic adoption of AI to enable scalable and efficient privacy solutions. AI can be leveraged for various aspects of compliance, from automating data discovery and classification to streamlining consent management and automating data subject access requests. This integration of AI is not merely about compliance but also about enhancing operational efficiency within banks.

The report emphasizes that regulatory alignment, customer trust, and digital innovation must progress hand-in-hand. It points out that the DPDP Act will inevitably overlap with existing sector-specific guidelines from the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI), adding new layers of compliance. For instance, current RBI data retention rules will need to be reconciled with the DPDP Act's principles of data minimization and storage limitation. Similarly, breach reporting obligations will now need to cater to both financial regulators and the newly established Data Protection Board of India.

To navigate this complex landscape, Protiviti advises banks to adopt a risk-based, adaptive operating model. This approach allows for continuous evolution in response to emerging threats, regulatory developments, and technological advancements. The urgency stems from the potential for hefty penalties for non-compliance, with fines reaching up to ₹250 crore per violation, alongside the imperative to maintain customer trust in an increasingly data-conscious environment. In essence, the report underscores that for Indian banks, investing in robust data governance, cross-functional accountability, and AI-driven privacy solutions is no longer optional but a strategic necessity for futureproofing their operations.