RBI allows small finance banks to offer pre-sanctioned credit lines on UPI

The Reserve Bank of India (RBI) has permitted small finance banks (SFBs) to offer pre-sanctioned credit lines via the Unified Payments Interface (UPI), a facility previously available only through scheduled commercial banks. This move aims to deepen financial inclusion and extend formal credit access to "new-to-credit" customers, including individuals and small businesses. By linking pre-sanctioned credit lines to UPI, users can seamlessly access overdrafts, retail loans, and credit lines for transactions, fostering economic growth. SFBs, known for their cost-effective, technology-driven operations, are expected to enhance the reach of credit facilities to underserved customers, furthering the RBI's mission to expand credit availability across India. 

In November 2023, UPI transactions declined 7% in volume to 15.48 billion and 8% in value to Rs. 21.55 trillion (US$ 254.49 billion), compared to the all-time high of 16.58 billion transactions worth Rs. 23.5 trillion (US$ 277.52 billion) in October, attributed to festive sales. Despite this drop, credit line transactions via UPI have begun contributing Rs. 100–200 crore (US$ 11.81-23.62 million) monthly out of a total of Rs. 10,000 crore (US$ 1.18 billion) in credit transactions, with the remainder coming from RuPay credit cards on UPI. The RBI sees significant potential in the "credit line on UPI" facility, especially for low-ticket, short-tenor credit products, further enabling SFBs to support financial inclusion and drive economic activity. 

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.