Reserve Bank of India inserts Chapter IIA on Credit Facilities Linked to Specific Payment Instruments
Small finance banks must set prudential treatment of payment-instrument-linked credit facilities by the underlying facility, not the payment instrument
Change
On 23 June 2026, the Reserve Bank of India (RBI) inserted Chapter IIA into the Small Finance Banks Credit Facilities Directions, requiring that prudential treatment of credit facilities linked to specific payment instruments (including pre-sanctioned UPI credit lines) be determined solely by the nature of the underlying credit facility and that linked-product terms be included in the bank's credit policy, effective immediately.
Why it matters
The amendment removes the ambiguity that would let the payment instrument dictate prudential classification: UPI-linked pre-sanctioned credit lines must be treated under the same prudential norms as the equivalent conventional credit facility. Any facility designed to be linked to a specific payment mode must be documented in the bank's credit policy and comply with all other applicable regulations, and only facilities permitted under extant regulations may be offered as linked arrangements.
Implications
- — Small finance banks' credit-policy teams must add the terms and conditions of any credit facility designed to be linked to a specific payment mode into the bank's credit policy — omitting them is non-compliance with the RBI Directions.
- — Small finance banks' risk and prudential teams must classify and apply prudential norms to UPI-linked pre-sanctioned credit lines by the nature of the underlying credit facility rather than the payment instrument — classifying by the payment instrument is non-compliance with the RBI Directions.
- — Small finance banks' product development teams must not offer payment-instrument-linked credit facilities that are not otherwise permitted under extant regulations — doing so is barred by the Directions.
Who is affected
- — Small finance banks' credit-policy teams
- — Small finance banks' risk and prudential teams
- — Small finance banks' product development teams
What to watch
- — 23 June 2026: the amendment applies with immediate effect.