The Reserve Bank of India (RBI) on Wednesday announced an expansion in the scope of Unified Payments Interface (UPI) by enabling transactions from pre-sanctioned credit lines at banks for Small Finance Banks too.
Previously, when the announcement was first made in December 2024 during the MPC meet outcomes, Small Finance Banks, Payments Banks, and Regional Rural Banks were excluded from this feature.
Before this announcement, UPI facilitated payments from savings accounts, overdraft accounts, prepaid wallets, and credit cards and the scope of the same was extended for UPI to be used as a funding account.
The Reserve Bank of India (RBI) expanded pre-approved credit lines on UPI to Small Finance Banks (SFBs). This move aims to provide affordable, short-term loans to those without prior credit history, furthering financial inclusion. SFBs’ tech-driven approach is expected to broaden credit access, particularly for new borrowers, offering lower operational costs and access to wider merchant networks.
With this move, Small Finance Banks (SFBs) can now offer credit lines linked to UPI, further broadening financial access.The latest directive allows individuals to make UPI payments through pre-sanctioned credit lines, subject to their prior consent.
Banks, as per their board-approved policies, can determine the terms and conditions for utilizing such credit lines, including credit limits, tenure, interest rates, and repayment terms.
The introduction of credit lines on UPI is expected to drive financial inclusion by providing small-ticket, short-term credit to ‘new-to-credit’ customers. Given their tech-driven, cost-efficient model, Small Finance Banks can play a crucial role in extending last-mile credit access via UPI.
