RBI allows pre-approved credit lines on UPI from small finance banks

The Reserve Bank of India (RBI) has widened the scope of Unified Payments Interface (UPI) transactions by allowing small finance banks (SFBs) to provide pre-sanctioned credit lines. RBI had introduced credit lines on UPI in September 2023 for banks and third party apps.

UPI currently facilitates transactions through linked savings accounts, overdraft accounts, prepaid wallets, and credit cards. With the update, credit lines will become an additional source of funding. Users will have to provide explicit consent before utilising pre-sanctioned 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 of use of such credit lines. The terms may include, among other items, credit limit, period of credit, rate of interest, etc,” said the RBI in a notification dated February 12.

Customers of small finance banks will be able to access pre-approved credit lines via UPI, just as they use linked bank accounts or credit cards. This will enable them to obtain short-term credit instantly without requiring a separate loan application.

“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,” said Adhil Shetty, chief executive officer of Bankbazaar.

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.