RBI proposes credit line access on UPI for Small Finance Banks

Posted on by

The Reserve Bank of India (RBI) today proposed allowing small finance banks (SFBs) to offer pre-sanctioned credit lines through the unified payments interface (UPI) and will issue the necessary guidelines shortly.

“Credit line on UPI has the potential to make available low-ticket, low-tenor products to ‘new-to-credit’ customers. SFBs leverage a high-tech, low-cost model to reach the last mile customer and can play an enabling role in expanding the reach of credit on UPI. It is, therefore, proposed to permit SFBs to extend pre-sanctioned credit lines through the UPI,” the regulator said.

Earlier, the RBI had allowed pre-sanctioned credit lines to be linked through UPI by scheduled commercial banks, excluding payments banks, SFBs and regional rural banks.

UPI transactions in November showed a slight dip from the previous month. While total transaction volume fell by 7 per cent month-on-month to 1,548 crore, overall value declined by 8 per cent to Rs 21.55 lakh crore.

FREE-AI

Separately, the RBI today proposed forming a committee to develop a Framework for Responsible and Ethical Enablement of AI (FREE-AI) in the financial sector. The committee will comprise experts from diverse fields and recommend a robust, comprehensive, and adaptable artificial intelligence (AI) framework for the financial sector.

“Technologies like Artificial Intelligence (AI)/ Machine Learning (ML), tokenisation, Cloud Computing hold transformative potential for the financial sector as they can handle enormous volumes of data, automate complex processes, enhance decision-making, and bring in unprecedented efficiencies,” the regulator said.

“While the benefits are many, the attendant risks like algorithmic bias, explainability of decisions, data privacy, etc., are also high. To harness the benefits, it is critical to address the attendant risks early in the adoption cycle,” it added.

Further, the Reserve Bank Innovation Hub, a subsidiary of the RBI, is piloting an AL/ML-based model called MuleHunter.AI to detect mule accounts used for fraud.

“A pilot with two large public sector banks has yielded encouraging results. Banks are encouraged to collaborate with RBIH to further develop the MuleHunter.AI initiative to deal with the issue of mule bank accounts being used for committing financial frauds,” it said.