Mumbai: The Reserve Bank of India (RBI) has allowed small finance banks (SFBs) to provide credit lines through the Unified Payments Interface (UPI), expanding the platform’s scope beyond traditional bank accounts and credit cards. This move follows the central bank’s December 2024 monetary policy announcement and is expected to improve access to short-term credit for individuals and small businesses.
Pre-Sanctioned Credit Lines Now Accessible on UPI
Customers with pre-approved credit lines from SFBs can now use them directly for UPI transactions. This feature enables users to make payments without needing a separate loan approval process, making credit access more seamless. The RBI’s notification dated February 12, 2025, states that banks will determine the credit terms, including interest rates, credit limits, and repayment periods, based on their internal policies.
Currently, UPI allows transactions through linked savings accounts, overdraft accounts, prepaid wallets, and credit cards. With this update, credit lines have been added as a new funding source. However, users must provide explicit consent before using pre-sanctioned credit lines to ensure transparency and prevent unauthorized transactions.
Cost-Effective Alternative to Credit Cards?
The inclusion of credit lines on UPI could make borrowing more accessible and potentially more affordable than traditional credit cards or personal loans, depending on how banks price their interest rates. While this offers a new credit avenue for consumers, financial experts advise reviewing the terms carefully, as some banks may impose high-interest rates or strict repayment conditions.
Industry Response
Industry experts see this as a major step toward financial inclusion. Rahul Jain, CFO of NTT DATA Payment Services India, noted that this move could benefit small businesses and individuals by offering quick and easy credit access. However, consumer awareness about repayment terms and interest rates will be crucial in determining the success of this initiative. By enabling SFBs to offer credit lines on UPI, the RBI aims to provide an alternative borrowing channel that could reshape digital lending in India.
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