Ready for the AI Bubble to Burst? What It Means for Indian FinTech

By Sougata Basu, Founder, CashRich and Executive Committee Member, India FinTech Forum

AI-linked stocks like Nvidia have delivered extraordinary returns, yet investors see familiar signs of excess: stretched valuations, high expectations, and crowds rushing in. This brings us to a key question: Will the global AI bubble burst, and what does it mean for India’s rapidly evolving FinTech ecosystem?

India lacks an AI-driven stock market like the US. Our earnings come from a broader base, including financials, manufacturing, and consumer sectors. However, when US tech cools, global risk appetite weakens, FII flows reverse, and even high-quality Indian companies face selling pressure. India’s direct AI exposure may be low, but spillover effects remain meaningful.

AI is Transforming Digital Finance

While concerns about an AI bubble are valid, genuine applications are already delivering substantial business value across India’s financial services sector. AI-powered credit scoring is revolutionising digital lending, with Indian FinTechs now processing thousands of data points for real-time credit decisions and fraud detection. By 2030, digital lending is projected to capture over half of India’s FinTech revenue.

The impact extends beyond lending. Financial institutions deploying AI in cybersecurity report measurably lower breach costs and faster threat detection. In wealth management, AI-driven robo-advisors and automated trading platforms are democratising investment access. The Indian mutual fund industry reflects this transformation. Mutual Fund AUM has surged more than sixfold from ₹12.95 trillion (November 2015) to ₹80.80 trillion (November 2025) in the last 10 years.

Underpinning this growth is India’s remarkable progress in financial inclusion. Bank account ownership has risen dramatically over the past decade, powered by UPI and digital infrastructure that now enables AI-driven services to reach millions who were previously unbanked.

Indian FinTechs and the AI Boom

AI adoption across Indian industries is accelerating rapidly, with banking and financial services leading the charge. This momentum is backed by significant funding for AI, especially Generative AI, which has seen a massive jump this year. Established players are moving aggressively, acquiring or partnering with AI-native startups to bolster their capabilities.

The business case for AI in financial services is no longer theoretical. Bajaj Finance is targeting savings of ₹150 crore annually through GenAI-powered bots, while Tata Capital has trimmed

service costs by 20%. Mid-sized banks have reported credit disbursement and collection costs dropping by more than 30% following AI implementation.

Beyond efficiency, there’s a market expansion story. Alternative data scoring now enables lenders to serve thin-file customers (individuals with limited or no traditional credit history). This unlocks a vast underserved segment that was previously considered too risky to underwrite.

Regulatory clarity is catching up with innovation. In August 2025, RBI released its Framework for Responsible and Ethical Enablement of AI (FREE-AI), outlining 7 Sutras and 26 recommendations built on principles of Trust, Fairness, Accountability, and “Innovation over Restraint.” Notably, RBI surveys indicate that only about 21% of regulated entities currently deploy AI solutions, signalling substantial headroom for adoption as the ecosystem matures.

The Road Ahead

Several trends are poised to reshape India’s financial services landscape: agentic AI enabling autonomous workflows, embedded finance integrating credit seamlessly into consumer apps, the Account Aggregator ecosystem facilitating secure data exchange, and parametric insurance models serving agriculture and MSMEs.

The long-term opportunity remains compelling. India may not be at the centre of the global AI bubble, but when the US sneezes, global markets catch a cold. Investors would do well to stay invested, maintain liquidity, and prepare for volatility.

For FinTech founders, the path forward is clear. Embrace these technologies responsibly, align with RBI’s FREE-AI guidelines, and focus on genuine value creation rather than chasing hype. The winners will be those who build for substance, not sentiment.

India isn’t following global FinTech trends anymore. It is setting them.