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

RBI allows Small Finance Banks to offer pre-sanctioned credit lines via UPI, aiming to boost financial inclusion for underserved communities, including small businesses and micro-entrepreneurs

RBI Governor Shaktikanta Das, following the Monetary Policy Committee (MPC) meeting on Friday, December 6, announced that Small Finance Banks (SFBs) will now be permitted to provide pre-sanctioned credit lines through the Unified Payments Interface (UPI).

 

This move aims to support underserved groups, including small businesses, micro-entrepreneurs, and individuals in rural and semi-urban regions.

 

This development follows an important update from September 2023, when the RBI allowed Scheduled Commercial Banks to link pre-sanctioned credit lines to UPI accounts. Previously, this feature was unavailable to SFBs, Regional Rural Banks, and Payments Banks.

 

SFBs, known for their cost-efficient, technology-driven banking solutions for last-mile customers, will now be able to offer credit products to customers who are ‘new-to-credit’. These products, typically involving smaller loan amounts and shorter terms, will offer much-needed support to people and businesses with limited access to formal credit. 

Adhil Shetty, CEO of Bankbazaar.com said, "The central bank has extended the credit line to small finance banks (SFBs). This simply means that small finance banks can now offer UPI-linked credit facilities to their customers."

 

He further said, "This will boost financial inclusion. UPI allows accessing pre-approved credit for payments instead of using funds from your accounts."

How pre-sanctioned credit lines on UPI work

Pre-sanctioned credit lines via UPI allow customers to access pre-approved credit directly on the platform. By integrating credit facilities, overdrafts, and retail loans with UPI, the offering streamlines financial transactions and enables immediate access to funds.

 

The RBI said detailed guidelines for the implementation of this service will be issued soon, allowing SFBs to play a vital role in expanding credit access nationwide.

 

SFBs, which operate under the Banking Regulation Act of 1949, serve the unorganised sector, small industries, and rural communities. By incorporating UPI-based credit lines into their services, these banks will help promote ‘financial inclusion, reaching people who have traditionally been excluded’ from the banking system.

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The RBI Monetary Policy Committee has decided to keep the repo rate unchanged at 6.5 per cent for the 11th consecutive time, while significantly revising down its GDP growth forecast for the current financial year to 6.6 per cent, from the previous estimate of 7.2 per cent. 

Inflation surged to a 14-month high of 6.21 per cent in October, largely due to rising food prices and geopolitical disruptions that have significantly impacted global supply chains.