Now, Small Finance Banks Can Extend Credit Lines Via UPI

SUMMARY

The Reserve Bank of India (RBI) has now allowed small finance banks (SFBs) to offer pre-sanctioned credit lines via UPI

Announced on February 12, the move builds on the RBI introducing credit lines via UPI in September 2023 for banks and third-party apps

Notably, pre-sanctioned credit lines via UPI allow customers to access pre-approved credit directly on the platform

The Reserve Bank of India (RBI) has now allowed small finance banks (SFBs) to offer pre-sanctioned credit lines via UPI.

Announced on February 12, the move builds on the RBI introducing credit lines via UPI in September 2023 for banks and third-party apps.

Notably, pre-sanctioned credit lines via UPI allow customers to access pre-approved credit directly on the platform.

The addition of pre-sanctioned credit lines will enable consumers to seamlessly access loans. However, users will have to give explicit consent before using these credit lines.

“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 such as credit limit, period of credit, rate of interest, etc,” said the RBI in a statement.

With this update, customers of small finance banks can now access pre-approved credit lines directly via UPI, similar to how they use linked bank accounts or credit cards. This integration basically will eliminate the need for separate loan applications, making short-term credit access more seamless.

This also follows the former RBI governor, Shaktikanta Das’ last year’s announcement that the central bank will allow SFBs to offer pre-sanctioned credit lines through UPI. Notably, the RBI allowed larger scheduled commercial banks to offer credit lines to their customers through UPI back in 2023.

This has comes at a time when the RBI has pulled all stops to shore up the penetration of digital payments in the country. Previously, the central bank increased the cap on transactions processed on UPI 123Pay to INR 10,000 from INR 5,000 earlier while also increasing the transaction limit for UPI Lite to INR 1,000 from INR 500 earlier.

According to the National Payments Corporation of India (NPCI) data, UPI locked 16.99 Bn transactions worth INR 23.48 Lakh Cr in January versus INR 23.25 Lakh Cr in December 2024.

In terms of UPI market share, fintech giants PhonePe and Google Pay continue to dominate the ecosystem, holding 48.4% and 37.3% market shares, respectively, as of August last year.