State Bank of India (SBI) is developing a new digital lending framework that could enable small businesses without Goods and Services Tax (GST) registration to access formal credit by using their UPI transaction history as an alternative indicator of business turnover.

The initiative is aimed particularly at micro and small businesses that operate outside the GST ecosystem and often find it difficult to obtain formal bank finance because they lack conventional financial records that lenders typically rely upon for assessing creditworthiness.

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Ashwini Kumar Tewari, Managing Director of SBI, disclosed the development at the Global Fintech Fest, explaining that the bank is exploring whether regular digital payment flows can provide sufficient evidence of a business’s sales and cash-flow profile for automated lending decisions.

UPI Transactions Could Become an Alternative to GST Data

Traditionally, GST returns and related tax records provide banks with an important source of information when evaluating the turnover and financial performance of a business.

However, a large number of micro businesses either do not fall within the mandatory GST registration framework or operate at a scale where they do not have extensive formal financial documentation.

SBI is therefore working on a model under which UPI transactions could act as a proxy for sales data.

The underlying idea is relatively straightforward: if a business consistently receives payments through UPI, those transactions can potentially establish a reliable digital trail of its revenue activity.

Rather than depending exclusively on GST filings, balance sheets or other conventional financial statements, the bank could analyse the business’s digital transaction behaviour to build an assessment of its ability to repay a loan.

The proposed model would, however, operate subject to appropriate customer consent and other applicable requirements.

SBI Already Offers Rapid Automated Business Loans

SBI has already developed an automated lending process for businesses for which GST registration and other relevant financial information are available.

According to Tewari, customers having GST registration, PAN and other required data can currently obtain business loans through an automated process in approximately 10 minutes.

The scale of this lending activity is significant. SBI has disbursed around ₹1 trillion in such loans over the past one-and-a-half years, demonstrating the potential of technology-driven credit assessment.

The next challenge for the bank is to extend a similar level of automation to businesses that do not have GST registration.

For this segment, UPI transactions and other digital payment behaviour could potentially provide the missing financial information.

Shift from Balance-Sheet Lending to Cash-Flow-Based Lending

The proposed UPI-based model reflects a broader transformation taking place in the way banks assess small-business borrowers.

Historically, access to business credit has often depended on the availability of balance sheets, audited financial statements, collateral and other conventional financial indicators.

Digital payments are now creating another source of information.

Tewari indicated that the banking sector is increasingly moving towards cash-flow-based lending, where the actual movement of money through a business becomes an important component of credit assessment.

The critical requirement, however, is visibility.

Cash flows that take place through digital channels can be tracked, analysed and potentially used for underwriting. Physical cash transactions, by contrast, are considerably more difficult for lenders to independently verify.

This makes the increasing adoption of UPI particularly significant for India’s micro and small-business sector.

Building a Digital Financial Profile of Micro Businesses

One of the biggest potential advantages of the proposed system is its ability to create a financial profile for businesses that may not have extensive formal records.

A lender could potentially analyse factors such as:

• Frequency of incoming UPI payments;
• Value and consistency of transactions;
• Revenue patterns over a period of time;
• Business expenditure patterns;
• Digital payment behaviour;
• Regularity of cash flows; and
• Other consent-based financial indicators.

Such data could help banks understand the underlying economic activity of a business even where its revenue is irregular or its financial statements provide limited information.

The approach could be particularly relevant for very small enterprises, retailers, service providers and other micro businesses that increasingly receive customer payments digitally.

Micro Businesses Remain a Major Credit Challenge

The initiative is also aimed at addressing the longstanding financing gap faced by India’s MSME sector.

Micro enterprises often struggle to obtain formal credit because they are too small to satisfy the documentation and underwriting requirements associated

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