Reserve Bank of India (RBI) has recently decided to permit Small Finance Banks (SFBs) to extend pre-sanctioned credit lines through Unified Payment Interface (UPI).
Credit Line through UPI by SFBs
- Under this facility, payments through a pre-sanctioned credit line issued by a Bank to individuals, with prior consent of the individual customer, are enabled for transactions using UPI System.
- Previously, in September 2023, RBI allowed operations of pre-sanctioned credit limits through UPI by Scheduled Commercial Bank to individuals.
- Significance: Aims to deepen financial inclusion and enhance formal credit, particularly for ‘new to credit’ customers.
About SFBs
- Origin: Announced in Union Budget 2014-15.
- Objective: To further financial inclusion by -
- provision of savings vehicles primarily to unserved and underserved sections of the population, and
- supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities, through high technology-low cost operations.
- Registration: As a public limited company under Companies Act, 2013.
- Licensed under: Section 22 of Banking Regulation Act, 1949.
- Capital requirement: Minimum paid-up voting equity capital of ₹200 crore (except for such SFBs which are converted from Urban Cooperative Banks).
- Priority Sector Lending (PSL) norms: Required to extend 75% of its Adjusted Net Bank Credit (ANBC) to the priority sectors, as classified by RBI.
