SFBs Recently Received RBI Approval to Offer Credit Lines via UPI.
Banking & Finance
In February 2025, Small Finance Banks (SFBs) recently received the Reserve Bank of India (RBI) approval to provide pre-sanctioned credit lines through the Unified Payments Interface (UPI). This move, effective from February 12, 2025, aligns with the RBI's December 2024 announcement during the Monetary Policy Committee (MPC) meeting.
- UPI, India's real-time payment system developed by the National Payments Corporation of India (NPCI), previously allowed transactions via savings accounts, overdrafts, prepaid wallets, and credit cards.
- The RBI has now expanded this to include pre-sanctioned credit lines issued by SFBs, enabling instant access to credit for individuals and small businesses.
- The Unified Payments Interface (UPI) is a digital payment tool that can help achieve the goals of the Pradhan Mantri Jan Dhan Yojana (PMJDY) and promote equitable economic growth.
Main Point :- (i) In September 2023, the RBI expanded the scope of UPI by allowing pre-sanctioned credit lines to be linked through the platform. However, this feature was initially limited to commercial banks, excluding Payments Banks, Small Finance Banks (SFBs), and Regional Rural Banks (RRBs).
(ii) Customers must provide explicit consent before availing credit lines, ensuring transparency. SFBs determine credit limits, interest rates, and repayment tenure under their board-approved policies. Customers are required to review the terms and conditions before opting in.
(iii) This facility aims to support 'new-to-credit' (NTC) customers, including farmers, small entrepreneurs, and rural businesses, helping reduce dependence on informal lenders charging high-interest rates.
About RBI
Governor : Sanjay Malhotra
Headquarter : Mumbai
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