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RBI Approves Small Finance Banks To Provide Pre-Sanctioned Credit Via UPI

The development builds on a significant decision from September 2023, when the RBI permitted Scheduled Commercial Banks to link pre-sanctioned credit lines to UPI accounts

RBI Governor Shaktikanta Das, speaking after the Monetary Policy Committee (MPC) meeting on Friday, announced that Small Finance Banks (SFBs) will now be allowed to offer pre-sanctioned credit lines via the Unified Payments Interface (UPI). This move aims to benefit underserved segments, including small businesses, micro-entrepreneurs, and individuals in rural and semi-urban areas.

The development builds on a significant decision from September 2023, when the RBI permitted Scheduled Commercial Banks to link pre-sanctioned credit lines to UPI accounts. Before this, SFBs, Regional Rural Banks, and Payments Banks did not have access to this feature.

How Pre-Approved Credit Lines Via UPI Function

SFBs, known for their cost-effective, technology-driven banking solutions tailored to last-mile customers, can now offer credit products to individuals and businesses that are new to credit. These products, typically featuring smaller loan amounts and shorter terms, will provide crucial support to people and businesses with limited access to formal credit.

Pre-sanctioned credit lines via UPI enable customers to access pre-approved credit directly on the platform. By integrating credit facilities, overdrafts, and retail loans with UPI, this offering simplifies financial transactions and provides immediate access to funds.

The RBI has stated that detailed guidelines for implementing this service will be released soon, empowering SFBs to play a key role in expanding credit access nationwide.

Under the Banking Regulation Act of 1949, SFBs cater to the unorganised sector, small industries, and rural communities. By integrating UPI-based credit lines into their offerings, these banks will foster financial inclusion, reaching individuals who have historically been excluded from the formal banking system.

Meanwhile, the RBI Monetary Policy Committee has decided to maintain the repo rate at 6.5 per cent for the 11th consecutive meeting. At the same time, it has sharply revised its GDP growth forecast for the current financial year to 6.6 per cent, down from the earlier estimate of 7.2 per cent.

Also Read : RBI MPC: Central Bank Slashes FY25 GDP Growth Forecast To 6.6% Amid Economic Slowdown

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