RBI to allow small finance banks to extend credit lines through UPI

RBI proposes small finance banks to offer pre-sanctioned credit lines through UPI, expanding reach of credit.

The Reserve Bank on Friday (December 6, 2024) proposed to allow small finance banks to extend pre-sanctioned credit lines through Unified Payments Interface (UPI).

UPI is an instant real-time payment system developed by NPCI for transactions through mobile phones.

In September 2023, the scope of UPI was expanded by enabling pre-sanctioned credit lines to be linked through UPI and used as a funding account by commercial banks excluding Payments Banks, Small Finance Banks (SFBs) and Regional Rural Banks.

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Credit line on UPI has the potential to make available low-ticket, low-tenor products to "new-to-credit" customers, RBI Governor Shaktikanta Das said.

SFBs leverage a high-tech, low-cost model to reach the last-mile customer and can play an enabling role in expanding the reach of credit on UPI, he said.

“It is, therefore, proposed to permit SFBs to extend pre-sanctioned credit lines through the UPI. Necessary guidelines will be issued shortly,” he said while unveiling the latest bi-monthly monetary policy.