RBI Issues Prudential Norms for UPI-Linked Credit by SFBs

CIRCULAR NO. DOR.STR.REC.129/21-07-001/2026-27, Dated 23-06-2026

The Reserve Bank of India (RBI) has amended the RBI (Small Finance Banks – Credit Facilities) Directions, 2025 to introduce a prudential framework governing credit facilities linked to specific payment instruments.

The amendment clarifies the regulatory treatment of such facilities, including pre-sanctioned credit lines for UPI transactions, and requires Small Finance Banks (SFBs) to incorporate appropriate provisions in their credit policies.

1. Prudential Framework Introduced for Payment-Linked Credit Facilities

The amendment introduces a regulatory framework for credit facilities that are linked to specific payment instruments.

The framework seeks to ensure uniform prudential treatment of such facilities and strengthen risk management practices adopted by Small Finance Banks.

2. Treatment Based on the Underlying Credit Facility

RBI has clarified that the prudential treatment of credit facilities linked to payment instruments shall be determined based on the nature of the underlying credit facility.

Accordingly, regulatory requirements applicable to the underlying loan or credit exposure will continue to govern the treatment of such facilities.

3. Coverage of Pre-Sanctioned UPI Credit Lines

The clarification specifically covers pre-sanctioned credit lines linked to UPI transactions.

Such facilities will not be treated as a separate category of credit but will be subject to the prudential norms applicable to the underlying sanctioned credit facility.

4. Credit Policy to Incorporate Relevant Terms and Conditions

The amendment requires Small Finance Banks to incorporate the terms and conditions governing payment-linked credit facilities into their credit policies.

This is intended to ensure appropriate governance, risk assessment and operational controls in relation to such products.

5. Objective of the Amendment

The amendment seeks to:

• Establish a prudential framework for payment-linked credit facilities;
• Clarify the regulatory treatment of pre-sanctioned UPI credit lines;
• Promote consistency in the application of prudential norms;
• Strengthen risk management by Small Finance Banks; and
• Ensure appropriate policy governance for such credit products.

6. Expected Impact

The revised framework provides regulatory clarity on the prudential treatment of emerging payment-linked credit products. It is expected to facilitate responsible innovation while ensuring that Small Finance Banks continue to apply appropriate credit risk management and governance standards.

7. Key Takeaway

RBI has amended the RBI (Small Finance Banks – Credit Facilities) Directions, 2025, to introduce a prudential framework for credit facilities linked to payment instruments. The amendment clarifies that the prudential treatment of such facilities, including pre-sanctioned credit lines for UPI transactions, shall be determined by the nature of the underlying credit facility and requires Small Finance Banks to incorporate the relevant terms and conditions into their credit policies.

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