Quick answerRBI mandates that credit facilities linked to UPI or any payment mode must follow standard prudential norms based on the credit's nature, not the payment channel. SFBs must embed such products in board-approved credit policies and ensure regulatory compliance.
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.
The rule, in the simplest words
SFBs must treat UPI-linked credit lines the same as other credit facilities, following the same prudential norms.
Credit facilities linked to specific payment modes must be explicitly covered in the bank's credit policy.
Only permissible credit products can be offered via UPI or other payment instruments.
How it plays out — a real example
Rahul, a credit officer at a Small Finance Bank in Mumbai, ensures that all pre-sanctioned UPI credit lines are classified and provisioned based on the underlying credit's nature, not the payment channel. He updates the bank's credit policy to include terms for payment-mode-linked credit and verifies that any new credit product offered via UPI is permissible under extant regulations.
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.
📜 Read the original circular — full text as issued by RBI
RBI/2026-27/151
DOR.STR.REC.129/21-07-001/2026-27
June 23, 2026
Reserve Bank of India (Small Finance Banks – Credit Facilities) Third Amendment Directions, 2026
Please refer to Reserve Bank of India (Small Finance Banks – Credit Facilities) Directions, 2025 (hereinafter referred to as ‘the Directions’).
2. In view of circular on “Operation of Pre-Sanctioned Credit Lines at Banks through Unified Payments Interface (UPI)” dated September 04, 2023 (made applicable to SFBs with effect from February 12, 2025), which allow banks to enable transactions using the UPI system through a pre-sanctioned credit line with prior consent of the customer, it is imperative to ensure consistency in regulatory compliance towards such products across banks.
3. Accordingly, in exercise of the powers conferred by the sections 21 and 35A of the Banking Regulation Act, 1949 and all other laws enabling the Reserve Bank in this regard, the Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby issues the Amendment Directions hereinafter specified.
4. These Amendment Directions modify the Directions as under:
After Chapter II of the Directions, a new Chapter IIA shall be inserted as below:
Chapter IIA: Credit Facilities Linked to Specific Payment Instruments
5A. Notwithstanding the mode / channel of credit delivery or the type of payment instrument and / or underlying technology used for its disbursement, the prudential treatment of an underlying credit facility, including pre-sanctioned credit lines meant for payment transactions through UPI, shall be solely determined by the nature of the underlying credit facility, governed in terms of the applicable prudential norms.
5B. Any credit facility which is designed to be linked to a specific payment mode, shall have its terms and conditions included in the bank’s credit policy and shall comply with all other applicable regulatory requirements.
Explanation – For avoidance of any doubt, it is clarified that only such credit facilities as are otherwise permitted to be sanctioned by a bank under the extant regulations, can be offered as part of any such arrangement.
5C. The above instructions shall be without derogation to the provisions of any other law or regulation in relation to transactions effected through any payment mechanism.
5. The above amendment would come into effect from immediate effect.
(Vaibhav Chaturvedi)
Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2026-27/151 · issued FY 2026-27. The plain-English explanation above is BankPulse’s own independent summary.
Test yourself
Quick self-check built only from the facts already on this page — tap a question to reveal the answer.
Q1. In one line, what does this circular do?
RBI mandates that credit facilities linked to UPI or any payment mode must follow standard prudential norms based on the credit's nature, not the payment channel. SFBs must embed such products in board-approved credit policies and ensure regulatory compliance.
Q2. Who does this circular apply to?
Small Finance Banks (SFBs), Credit policy teams at SFBs, Compliance officers at SFBs, Product teams designing UPI-linked credit lines
Q3. What is the first thing you should do about it?
Review and update your bank's credit policy to explicitly cover credit facilities linked to specific payment modes like UPI.
Review and update your bank's credit policy to explicitly cover credit facilities linked to specific payment modes like UPI.
📜 Compliance
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.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are a Credit Manager at a bank this circular applies to (Small Finance Banks (SFBs), Credit policy teams at SFBs, Compliance officers at SFBs, Product teams designing UPI-linked credit lines), your first concrete step on “SFB Credit Lines via UPI: Prudential Norms Clarified” is: “Review and update your bank's credit policy to explicitly cover credit facilities linked to specific payment modes like UPI.” (RBI issued this FY 2026-27).
Action required: Review and update your bank's credit policy to explicitly cover credit facilities linked to specific payment modes like UPI.
Action required: Ensure all pre-sanctioned UPI credit lines are classified and provisioned based on the underlying credit's nature, not the payment channel.
Action required: Verify that any new credit product offered via UPI or other payment instruments is otherwise permissible under extant regulations.
Action required: Train credit and compliance teams on the new Chapter IIA requirements to avoid misclassification.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
AI-drafted · AI fact-check pending · under the editorial review of our expert review panel · decoded & published by BankPulse · 23 Jun 2026, 17:18 IST
Official RBI source: https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=13527&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert review panel. Independent platform, not affiliated with the Reserve Bank of India; never reproduces RBI text verbatim.
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