RBI proposing pre-approved bank credit on UPI will enable hassle-free credit for SMEs: SBI Ecowrap

Credit and finance for MSMEs: So far, the UPI transactions were enabled between deposit accounts at banks, sometimes intermediated by pre-paid instruments including wallets, RBI had said.

Written by Sandeep Soni

April 13, 2023 15:28 IST

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A pre-approved credit line is basically credit already sanctioned by a lender for its customer that he or she can withdraw and use.

Credit and finance for MSMEs: The Reserve Bank of India’s (RBI) proposal last week to expand the scope of unified payments interface (UPI) by permitting the operation of pre-sanctioned credit lines at banks through the UPI will also enable SMEs to access credit in a hassle-free manner and boost micro-credit apart from revolutionise the way customers access credit, said the latest SBI Ecowrap report recently.

So far, the UPI transactions were enabled between deposit accounts at banks, sometimes intermediated by pre-paid instruments including wallets, RBI had said. With the latest move, the “UPI network will facilitate payments financed by credit from banks.” “This initiative will further encourage innovation,” RBI Governor Shaktikanta Das had said while announcing the decisions monetary policy meeting on April 6.

Jyoti Prakash Gadia, Managing Director at corporate financial advisory firm Resurgent India said this will encourage quick access to credit by MSMEs. “It will reduce the time taken in accessing credit online because of documentation, KYC and branch visits, and other related requirements for MSMEs. Moreover, it may add to creating alternative data points in terms of credit history to enhance the credit delivery mechanism,” Gadia told FE Aspire.

Also read: Bank credit to MSMEs grew 71% during FY15-FY22 period: Govt data

A pre-approved credit line is basically credit already sanctioned by a lender for its customer that he or she can withdraw and use.

The announcement by the central bank came days after the National Payments Corporation of India (NPCI) in a circular suggested an interchange fee of up to 1.1 per cent (of transaction value) from April 1, 2023, to be paid by merchants for payments above Rs 2,000 made on UPI through the prepaid payment instruments (PPIs) such as e-wallets and gift cards.

This was similar to the merchant discount rate charged to a merchant for processing payments made by customers using debit or credit cards. The interchange fee is referred to the cost incurred in accepting and processing a transaction

The NPCI last month had also collaborated with various payment aggregators such as like BharatPe, Cashfree Payments, Google Pay, Razorpay, Paytm, PayU and Pine Labs to enable merchant transactions through RuPay credit cards on UPI. Earlier, UPI customers were able to make transactions only through their bank accounts, overdraft accounts, and prepaid accounts. NPCI said the linkage will ensure that customers no longer have to carry their credit cards with them for payments.

Also read: NPCI partners with payment aggregators for merchant transactions through credit cards on UPI

UPI has attracted over 250 million unique users and five crore merchants over the last few years. The credit card-UPI linkage will benefit merchants, particularly those in semi-urban areas where card point-of-sale (PoS) terminals are not widely available, NPCI had said.

The initiatives by RBI and NPCI gains importance amid the massive credit gap in the MSME sector worth around Rs 20-25 lakh crore. “The critical issue in India’s credit market has been the consistent gap between the demand and supply of credit to MSMEs,” RBI’s deputy governor M. Rajeshwar Rao had said recently addressing the 31st Annual Management Convention of Thrissur Management Association.