For basic behaviour and pathfinding, yes. But aesthetics, outfits, dialogue, backgrounds, etc etc was all made by humans. The reason why NPC’s can feel so immersive and part of the worlds they exist in is because they’re made and written by the same people that made the rest of the game.
NPC’s with awkward AI-gen voicelines spouting hallucinated nonsense that has nothing to do with the game or the player’s actions is going to be an absolute dumpster fire.