In a significant move aimed at enhancing financial inclusivity, the Reserve Bank of India (RBI) announced on Friday its proposal to permit Small Finance Banks (SFBs) to extend pre-sanctioned credit lines through the Unified Payments Interface (UPI). This development will open new avenues for low-ticket, short-tenor credit, particularly for “new-to-credit” customers, leveraging UPI’s real-time payment system.

Credit Lines Through UPI: A Broader Scope

The UPI ecosystem, developed by the National Payments Corporation of India (NPCI), took a significant leap in September 2023 when the RBI allowed commercial banks, except for Payment Banks, Small Finance Banks, and Regional Rural Banks, to link pre-sanctioned credit lines as funding accounts for UPI transactions. Now, with SFBs potentially entering this space, the reach of credit through UPI is set to expand further.

“Small Finance Banks operate on a high-tech, low-cost model, enabling them to reach the last-mile customer. Their inclusion in UPI-linked credit will further democratize access to small-value credit,” said RBI Governor Shaktikanta Das while unveiling the bi-monthly monetary policy. He assured that necessary guidelines for SFBs to facilitate pre-sanctioned credit lines through UPI would be issued soon.

The inclusion of SFBs in this framework is expected to cater to underserved segments of the population, including individuals and businesses who lack traditional credit access. This move aligns with the RBI’s broader vision of financial inclusion and digitization.

Podcasts to Enhance Public Awareness

Apart from expanding the scope of UPI, the RBI has also proposed leveraging modern communication channels to enhance transparency and public engagement. Governor Das announced plans to launch podcasts as part of the central bank’s ongoing public awareness initiatives.

These podcasts aim to disseminate critical information, explain policy decisions, and promote financial literacy among the general public. “This initiative will be an extension of our efforts to connect with the wider audience through social media and other traditional platforms,” Das added.

A Strategic Push Towards Digital and Inclusive Finance

These announcements reflect the RBI’s commitment to using technology-driven solutions to address gaps in the financial ecosystem. By enabling SFBs to leverage UPI for credit disbursal, the RBI is not only expanding UPI’s functionality but also reinforcing technology’s role in driving last-mile financial connectivity.

Meanwhile, the proposed podcasts signal a shift toward more accessible communication channels, ensuring that policy updates and financial education reach a diverse audience.

As India continues to innovate its digital payment landscape, these measures are expected to bring transformative changes, fostering financial inclusion and enhancing the public’s understanding of monetary policy.