RBI Expands Pre-Approved UPI Credit Access to Small Finance Banks

The Reserve Bank of India (RBI) has expanded the scope of Unified Payments Interface (UPI) transactions by allowing Small Finance Banks (SFBs) to offer pre-approved credit lines. This decision, announced on February 12, 2025, builds on the RBI’s previous decision in September 2023, when it first introduced credit lines on UPI for scheduled commercial banks and third-party apps.

How UPI Transactions Work

UPI currently allows transactions through linked savings accounts, overdraft accounts, prepaid wallets, and credit cards. With this update, users will now have the option to access pre-approved credit lines for payments. 

However, banks will determine the specific terms, including credit limits, repayment periods, and interest rates, based on their internal policies.

Customer Consent Required

Before using a pre-sanctioned credit line, users must provide explicit consent to their bank. This will help make sure that customers are aware of borrowing conditions and any applicable charges before utilising the facility.

For customers of Small Finance Banks, this feature provides an additional short-term credit option. Instead of applying for a separate loan, individuals can use their pre-approved credit lines directly through UPI, similar to how they use bank accounts or credit cards.

Implementation Details

Banks will set their own policies regarding how these credit lines are offered. The RBI notification states that each financial institution must define the terms, which may include interest rates, borrowing limits, and repayment terms.

Growth in the Industry 

Both UPI and credit card transactions have increased majorly in the past five years. This update integrates another borrowing option within UPI, giving users access to short-term credit through the same platform they use for regular transactions.

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