By FMTeam In a significant move to enhance financial inclusion and streamline credit accessibility, the Reserve Bank of India (RBI) has permitted small finance banks (SFBs) to offer pre-approved credit lines through the Unified Payments Interface (UPI). This development, announced on February 13, 2025, aims to broaden the scope of UPI transactions, enabling customers to access short-term credit seamlessly.
Expanding UPI’s Capabilities
Traditionally, UPI has facilitated transactions by linking savings accounts, overdraft accounts, prepaid wallets, and credit cards. With the RBI’s latest directive, pre-sanctioned credit lines will now serve as an additional funding source on the UPI platform. This means that customers of SFBs can utilize pre-approved credit via UPI, similar to how they currently use linked bank accounts or credit cards. To access this facility, users must provide explicit consent before utilizing the pre-sanctioned credit lines.
The RBI’s notification stated: “Under this facility, payments through a pre-sanctioned credit line issued by a scheduled commercial bank to individuals, with prior consent of the individual customer, are enabled for transactions using the UPI system. Banks may, as per their board-approved policy, stipulate terms and conditions of use of such credit lines. The terms may include, among other items, credit limit, period of credit, rate of interest, etc.”
Benefits for Customers
This initiative allows customers to obtain short-term credit instantly without the need for a separate loan application. By integrating credit facilities, overdrafts, and retail loans with UPI, the offering streamlines financial transactions and enables immediate access to funds. Adhil Shetty, CEO of Bankbazaar, highlighted the significance of this move, stating, “UPI and credit card transaction volumes have both gone up tremendously in the last 5 years. Consumers get the benefit of being able to transact from their preferred UPI card on their preferred UPI app while earning rewards. The expansion of this facility will surely enhance the shopping experience of SFB customers.”
Implementation and Oversight
Banks are entrusted with the responsibility to define the terms and conditions for the utilization of these credit lines. This includes setting parameters such as credit limits, the duration of credit, interest rates, and other pertinent factors. The RBI emphasizes that these terms should be established in accordance with the banks’ board-approved policies, ensuring a structured and regulated approach to offering credit through UPI.
A Step Towards Greater Financial Inclusion
The RBI’s decision to allow SFBs to offer pre-sanctioned credit lines via UPI is poised to deepen financial inclusion, particularly benefiting underserved segments of the population. By providing instant access to credit, this move supports small businesses, micro-entrepreneurs, and individuals in rural and semi-urban areas, facilitating their participation in the formal financial system.
Conclusion
The integration of pre-approved credit lines into the UPI framework marks a significant advancement in India’s digital payment ecosystem. As SFBs implement this facility, customers can look forward to a more streamlined and accessible credit experience, further bridging the gap between traditional banking services and the evolving needs of a diverse clientele.