RBI extends credit on UPI facility to small finance banks

Credit line on UPI to be extended to small finance banks.

The Reserve Bank of India (RBI) on December 6 decided to extend the credit on UPI facility to small finance banks. So far, only scheduled commercial banks were authorised to offer the facility.

Launched in September 2023, credit line linked to UPI enables users to access instant credit through apps such as Bharat Interface for Money (BHIM), PayZapp, Paytm and GPay. Conceived by the National Payments Corporation of India (NPCI), it’s a pre-sanctioned credit limit which can be availed by customers while using the UPI payment app at the time of purchasing goods and services. "This will further deepen financial inclusion and enhance formal credit, particularly for ‘new-to-credit’ customers," the RBI said in its statement of developmental and regulatory policies.

Also read: Why credit line on UPI has not taken off yet

These are predetermined loans that banks or financial institutions extend to users based on their creditworthiness. The borrowers can use this credit line to make payments through UPI. "The move will provide credit facilities to those who bank with smaller institutions and bring more people, especially those in small towns and rural areas where SFBs operate, to access credit digitally and conveniently via UPI. This will boost financial inclusion. UPI allows accessing pre-approved credit for payments instead of using funds from your accounts," Bankbazaar.com CEO Adhil Shetty said.

Also read: Credit on UPI: Convenient loans at your fingertips, but watch for pitfalls

The objective is to ensure quick and convenient loan disbursals, eliminating the need for traditional loan approval processes and extensive documentation.

Users should remain vigilant to frauds such as unauthorised access to UPI credit, phishing, which trick users into revealing their sensitive credentials, and misuse of borrowed credit through identity theft.