Reserve Bank of India binds payment-instrument-linked credit facilities to prudential norms
Commercial banks must apply existing prudential norms to any credit facility linked to a specific payment instrument and include its terms in the bank's credit policy
Change
On 23 June 2026, the Reserve Bank of India (RBI) inserted Chapter IIA into the Commercial Banks Credit Facilities Directions, requiring that the prudential treatment of credit facilities linked to specific payment instruments (including UPI pre-sanctioned credit lines) be determined solely by the nature of the underlying credit facility and that such facilities' terms be included in banks' credit policies.
Why it matters
The amendment removes channel-based treatment: classification and prudential treatment follow the underlying credit facility, not the payment mechanism through which it is disbursed. Banks must document linked-product terms in their credit policies and may offer only those linked facilities already permitted under extant regulations. This prevents banks from offering UPI-linked pre-sanctioned credit lines without meeting the prudential requirements applicable to the underlying facility.
Implications
- — Commercial banks' product, risk and compliance teams must include the terms and conditions of any credit facility designed to be linked to a specific payment mode in the bank's credit policy and apply the prudential norms applicable to the underlying facility — a payment-linked product that does not meet those norms is non-compliant with the RBI Directions.
- — Commercial banks offering pre-sanctioned credit lines via UPI must confirm the underlying facility is permitted under extant regulations before offering it as a payment-linked product — offering a facility not otherwise permitted under extant regulations is barred under the Directions.
Who is affected
- — Commercial banks' product teams
- — Commercial banks' risk teams
- — Commercial banks' compliance teams