Indian banks are facing an urgent need to integrate artificial intelligence (AI), privacy-enhancing technologies (PETs), and privacy-by-design strategies to ensure effective compliance with the Digital Personal Data Protection Act (DPDPA). This directive comes from a recent report by Protiviti.

The report, titled "Navigating DPDPA in Banking: Compliance, Impact, and AI-Powered Strategies for Futureproofing," was unveiled at the 4th IBA CISO Summit 2025, hosted by the Indian Banks' Association. It underscores that the DPDPA will have a far-reaching regulatory and operational impact, compelling banks to re-engineer their critical functions. This re-engineering must align with privacy-by-design principles to meet the stringent requirements of India's most comprehensive data protection law to date.

The Protiviti report provides sector-specific insights, guiding financial institutions on harmonizing DPDPA compliance with existing regulations from the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI). It also identifies unique privacy risks inherent in the banking sector, such as those associated with algorithmic profiling, third-party data sharing, and the complexities of managing customer consent.

To address these challenges, an operational playbook is presented within the report. This playbook is designed to help banks integrate privacy-by-design principles across essential functions, including Know Your Customer (KYC) processes and fraud detection mechanisms. It also outlines strategies for automating compliance efforts to enhance efficiency.

Furthermore, the report emphasizes the critical role of technology, particularly AI, in developing scalable and efficient privacy solutions. Protiviti highlights that banks, due to the substantial volume and sensitivity of personal data they handle, are likely to be classified as Significant Data Fiduciaries (SDFs) under the DPDPA.

This SDF status imposes enhanced obligations. These include conducting regular Data Protection Impact Assessments (DPIAs), ensuring algorithmic transparency, performing routine data audits, and appointing a dedicated Data Protection Officer (DPO) to oversee compliance.

The report strongly advises that DPDPA compliance should not be viewed as a one-time project. Instead, banks should adopt a risk-based, adaptive operating model. This model must be capable of evolving in response to emerging cyber threats, new regulatory developments, and ongoing technological advancements. Banks are also encouraged to embed AI where suitable to improve operational efficiency and streamline overall privacy management.

A critical theme is the urgent need for stronger data governance frameworks, cross-functional accountability within banking organizations, and the deployment of AI-driven privacy solutions. The report stresses that regulatory alignment, maintaining customer trust, and fostering digital innovation must progress in tandem.

It is also noted that the DPDPA will inevitably overlap with existing sector-specific guidelines from regulatory bodies like the RBI and SEBI, thereby introducing new layers of compliance requirements. For example, current RBI data retention rules will need to be reconciled with DPDPA's principles of data minimization and storage limitation. Similarly, breach reporting obligations will need to satisfy the requirements of both financial regulators and the newly established Data Protection Board of India.