SFBs to Offer UPI-Based Credit Lines

• 12 Dec 2024

Source: ET 

Why in News? 

Recently, the Reserve Bank of India (RBI) has decided to permit Small Finance Banks (SFBs) to extend pre-sanctioned credit (loan) lines through the Unified Payments Interface (UPI). 

• It aims to deepen financial inclusion and enhance formal credit, particularly for ‘new to credit’ customers.

Note: In September 2023, the scope of UPI was expanded by enabling pre-sanctioned credit lines to be linked through UPI and used as a funding account by Scheduled Commercial Banks. 

• However, it excluded Payments Banks, Small Finance Banks (SFBs) and Regional Rural Banks. 

What are Small Finance Banks (SFBs)? 

• About: SFBs are specialized financial institutions regulated by RBI under the Banking Regulation Act, 1949.  
  • It was announced in the Union Budget 2014-15 to enhance credit supply using high-technology and low-cost operations. 
  • It was set up based upon recommendations of the Nachiket Mor Committee. 
• Registrations: SFBs are registered as a  public limited company under the Companies Act, 2013. 
• Objective: Its primary objective is to promote financial inclusion in underserved and unserved sections of society. 
  • It caters to small business units, small and marginal farmers, micro and small industries, and other unorganized sector entities. 
• SFB’s Mandate: They must allocate 75% of their Adjusted Net Bank Credit (ANBC) to priority sectors, including agriculture, MSMEs, and weaker sections. 
  • At least 25% of SFB branches must be located in unbanked rural areas to improve rural banking access. 
• Capital Requirement: To set up an SFB bank, the minimum capital required is Rs 200 crores. 

UPSC Civil Services Examination, Previous Year Questions (PYQs) 

Prelims 

Q. What is the purpose of setting up of Small Finance Banks (SFBs) in India? (2017) 

1. To supply credit to small business units
2. To supply credit to small and marginal farmers
3. To encourage young entrepreneurs to set up business particularly in rural areas.

Select the correct answer using the code given below: 

(a) 1 and 2 only 

(b) 2 and 3 only 

(c) 1 and 3 only 

(d) 1, 2 and 3 

Ans: (a)