The Reserve Bank of India (RBI) has allowed small finance banks (SFBs) to provide pre-sanctioned credit lines through the Unified Payments Interface (UPI).
This step is expected to enhance financial inclusion and expand access to formal credit.
Previous Restrictions on UPI Credit Lines
- Earlier, only scheduled commercial banks were allowed, and other banks such as Small finance banks (SFBs), payments banks, and regional rural banks(RRBs) were excluded from this facility.
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About UPI Credit Line
- The UPI Credit Line is a financial product aimed at making access to credit easier.
- Developed by : the National Payments Corporation of India (NPCI),
- It aligns with the Reserve Bank of India’s vision to enhance credit accessibility.
Key Features of UPI Credit Line
- Pre-Sanctioned Credit
- Banks provide pre-approved credit lines to individuals and small businesses.
- This credit can be used immediately for payments via UPI.
- Easy Linking
- Users can link their credit lines to their UPI ID using their registered mobile number.
- Secure Transactions
- Every transaction is protected with a dedicated UPI PIN for the credit line.
- Multiple Payment Options
- Credit lines can be used to make payments to merchants via QR codes or for online shopping on e-commerce platforms.
- Credit Insights
- Users can check their:
- Credit line status
- Utilized credit amount
- EMI details directly in the UPI app.
- Dispute Resolution
- Any issues can be resolved easily through the UPI Help (ODR) feature in the app.
- Flexible Repayment
- Repayments can be done via:
- Direct payments to the UPI ID linked to the credit line.
- AutoPay (e-mandates) for automatic deductions, if applicable.
Benefits of UPI Credit Line
- Instant Convenience : Provides instant credit for quick and seamless payments.
- Boosts Financial Inclusion : Helps “new-to-credit” customers access formal credit systems.
- Supports Economic Growth : Enables smooth transactions, promoting business growth and reducing barriers to credit access.
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What Are SFBs?
- SFBs are specialized banks licensed by the RBI.
- They cater to low-income individuals and underserved communities.
- Offer services like microfinance, micro-enterprise loans, and other basic banking products.
- SFBs receive scheduled bank status after meeting operational requirements as per Section 42 of the RBI Act, 1934.
- Example: Capital Small Finance Bank, Ujjivan, Utkarsh etc
Objective of SFBs
- Enhance Financial Inclusion:
- Provide savings options to unserved and underserved sections of society.
- Offer credit to:
- Small business units
- Small and marginal farmers
- Micro and small industries
- Other entities in the unorganised sector
- Operate using high-tech and low-cost models.
Key Features of SFBs
- Registration:
- Registered as a public limited company under the Companies Act, 2013.
- Licensing:
- Licensed under Section 22 of the Banking Regulation Act, 1949.
- Capital Requirement:
- Minimum paid-up voting equity capital of ₹200 crore is required.
- For SFBs converted from Urban Cooperative Banks, the capital requirement may differ.
- Priority Sector Lending (PSL) Norms:
- SFBs must allocate 75% of their Adjusted Net Bank Credit (ANBC) to priority sectors as defined by the RBI.
The guidelines for small finance banks provide inter-alia that
- Promoters: Promoters can include resident individuals or professionals with at least 10 years of experience in banking and finance.
- Companies controlled by such individuals are also eligible.
- Focus area: Primarily offer basic banking services.
- Regulatory compliance: SFB must follow all norms and regulations applicable to commercial banks.
- It comprises maintaining ratios
- Cash Reserve Ratio (CRR).
- Statutory Liquidity Ratio (SLR)
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December 7, 2024
