RBI Allows Small Finance Banks To Offer Credit On UPI

SUMMARY

RBI extends UPI credit line facility to small finance banks, expanding beyond commercial banks

Small finance banks can now offer pre-sanctioned credit through UPI to reach last-mile customers

The move aims to increase credit access for underserved segments including rural customers and small businesses

The Reserve Bank of India (RBI) today (December 6) said it will now allow small finance banks (SFBs) to offer 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.

The credit line on UPI was launched in September last year and was made available through scheduled commercial banks (SCBs).

RBI governor Shaktikanta Das, during the monetary policy committee (MPC) meeting, said that while the facility started with commercial banks, it will now be expanded to include other banking institutions.

“Small finance banks can now play an enabling role in expanding the reach of credit on UPI. They leverage a high-tech, low-cost model to reach the last mile customer,” said Das.

In terms of implementation, users will need to download a UPI app, select Credit Line as an option, choose their issuing bank, and generate a UPI PIN for transactions. The central bank will issue detailed guidelines for this facility shortly.

According to NPCI data, UPI transactions dropped 6.6% month-on-month to 15.48 Bn in November from 16.58 Bn in October. The total transaction value declined to INR 21.55 lakh Cr from INR 23.50 lakh Cr in October.

While these numbers show a slight decline from October’s festive season peak, the year-on-year growth remains strong, demonstrating UPI’s expanding role in India’s digital payments landscape.

PhonePe and Google Pay lead the UPI ecosystem with 48.4% and 37.3% market share respectively as of August 2024. The RBI said technical decline rates for UPI transactions have improved to 0.8% from 10% in 2016.

The announcement follows RBI’s recent UPI initiatives, including increasing the UPI 123Pay transaction limit to INR 10,000 from INR 5,000, and raising the UPI Lite transaction limit to INR 1,000 from INR 500.