THE ROLE OF ARTIFICIAL INTELLIGENCE IN SUSTAINABLE FINANCE: A STUDY WITH BANKING SECTOR – STATE PUBLIC SECTOR AND PRIVATE SECTOR BANKS

Abstract

Artificial Intelligence (AI) has become a transformative technology in the global financial sector, reshaping banking operations, enhancing decision-making, strengthening risk management, and promoting sustainable finance. The integration of AI technologies, including machine learning, natural language processing, predictive analytics, and robotic process automation, has enabled financial institutions to improve operational efficiency while supporting Environmental, Social, and Governance (ESG) objectives and sustainable development initiatives (Reserve Bank of India [RBI], 2024; World Economic Forum [WEF], 2024). Despite rapid technological advancements, the level of AI adoption and its contribution to sustainable finance differ considerably among state-owned, public sector, and private sector banks in India because of variations in technological capabilities, investment priorities, and organizational readiness. Existing studies primarily examine AI implementation or sustainable finance independently, with limited comparative evidence integrating both dimensions across different banking categories (Organisation for Economic Co-operation and Development [OECD], 2024; United Nations Environment Programme Finance Initiative [UNEP FI], 2023). Therefore, this study aims to examine the role of Artificial Intelligence in promoting sustainable finance by comparing State Bank of India, Punjab National Bank, Canara Bank, HDFC Bank, and ICICI Bank. A descriptive and analytical research design is adopted using primary data collected through a structured questionnaire from 500 employees and customers. The collected data are analysed using descriptive statistics, reliability analysis, correlation, multiple regression, analysis of variance (ANOVA), and Structural Equation Modelling (SEM) through SPSS, AMOS, and Smart PLS. The findings indicate that AI-driven innovation significantly enhances sustainable finance by improving operational efficiency, responsible lending, ESG performance, green finance initiatives, financial inclusion, and customer satisfaction, with private sector banks demonstrating comparatively higher AI maturity than state-owned and public sector banks. The study provides practical implications for banking executives, policymakers, and regulators by recommending strategic AI investments, robust governance frameworks, and sustainable financial policies that strengthen digital transformation, responsible finance, and long-term resilience within the Indian banking sector (Bank for International Settlements [BIS], 2024; RBI, 2024).