The Reserve Bank of India (RBI) has authorized small finance banks (SFBs) to offer pre-approved credit lines via the Unified Payments Interface (UPI), a service that was previously restricted to scheduled commercial banks. This new provision is intended to promote financial inclusion by granting “new-to-credit” individuals and small businesses access to formal credit.
By linking these pre-sanctioned credit lines to UPI, customers can easily access overdrafts, retail loans, and other credit facilities directly through their UPI-enabled devices, helping to stimulate economic activity. Small finance banks, known for their affordable and tech-driven operations, are expected to play a key role in extending credit to underserved populations, furthering RBI’s mission to broaden credit availability across India.
In November 2023, UPI transactions saw a 7% dip in volume, reaching 15.48 billion transactions, and an 8% decrease in value, totaling Rs. 21.55 trillion (US$ 254.49 billion), compared to October’s record high. Despite the decline, credit line transactions via UPI contributed an impressive Rs. 100–200 crore (US$ 11.81–23.62 million) monthly out of the total Rs. 10,000 crore (US$ 1.18 billion) in credit transactions. These numbers highlight the potential of UPI’s credit line feature, particularly for low-ticket, short-duration credit products, enabling SFBs to effectively support financial inclusion and fuel economic growth.
