What changed
RBI inserted a new Chapter IIA into the Small Finance Banks – Credit Facilities Directions, 2025. It clarifies that prudential treatment of any credit facility, including pre-sanctioned UPI credit lines, depends solely on the underlying credit's nature, not the payment method. Such facilities must be explicitly covered in the bank's credit policy and comply with all applicable regulations.
What it means for you
SFBs can no longer treat UPI-linked credit lines as separate or lighter products; they must apply the same prudential norms as for any similar credit facility. This ensures consistency across banks and prevents regulatory arbitrage. Banks must update their credit policies to include terms for payment-mode-linked credit and ensure only permissible credit products are offered.
What you must do
- Review and update your bank's credit policy to explicitly cover credit facilities linked to specific payment modes like UPI.
- Ensure all pre-sanctioned UPI credit lines are classified and provisioned based on the underlying credit's nature, not the payment channel.
- Verify that any new credit product offered via UPI or other payment instruments is otherwise permissible under extant regulations.
- Train credit and compliance teams on the new Chapter IIA requirements to avoid misclassification.
Who it affects
Small Finance Banks (SFBs), Credit policy teams at SFBs, Compliance officers at SFBs, Product teams designing UPI-linked credit lines
When does this amendment take effect?
The amendment takes effect immediately from the date of notification, June 23, 2026, as stated in the source.
Do we need to get board approval for existing UPI credit lines?
The source requires that terms and conditions of such credit facilities be included in the bank's credit policy, which typically requires board approval, but this is not explicitly stated in the source.