The Reserve Bank of India has proposed to allow small finance banks to extend pre-sanctioned credit lines through Unified Payments Interface, Governor Shaktikanta Das said during the monetary policy announcement.
This extension to small finance banks have come as they have the potential to make available low-ticket, low-tenor products to 'new-to-credit' customers.
Small finance banks leverage a high-tech, low-cost model to reach the last mile customer and can play an enabling role in expanding the reach of credit on UPI.
In September 2023, the scope of UPI was expanded by enabling pre-sanctioned credit lines to be linked through UPI and used as a funding account by scheduled commercial banks only. The central bank will issue a notice on this shortly.
This move has come as the RBI has been trying to cut down on unsecured lending growth, which have smaller ticket sizes.
On Friday, the RBI MPC kept the benchmark repo rate unchanged at 6.5% with a 4:6 majority. It also maintained a neutral stance and cut the Cash Reserve Ratio by 50 basis points to 4%.
RBI Governor Shaktikanta Das, in his speech after the monetary policy meet, advised banks and financial institutions to address issues of unclaimed deposits and frozen accounts due to pendency of KYC update.
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