RBI’s Latest Move: Unlocking Pre-sanctioned Credit Lines via UPI

byMehak BaglaLast Updated: September 5, 2023

Synopsis of the News-

  • Reserve Bank of India (RBI) announced that the Unified Payments Interface (UPI) System will now encompass pre-approved credit lines issued by banks for conducting transactions.
  • Previously, the UPI System allowed transactions exclusively with the deposited amount.
  • In April 2023, the Reserve Bank of India (RBI) introduced a proposal to broaden the horizons of the Unified Payments Interface (UPI) by permitting transfers to and from pre-approved credit lines offered by banks.

On Monday, 4th September 2023, the Reserve Bank announced that the UPI System would incorporate pre-approved credit lines offered by banks for transactions. Previously, the UPI System exclusively facilitated transactions using the deposited amount. Essentially, the credit line offered through UPI functions similarly to a Buy Now, Pay Later (BNPL) service. This allows customers to make payments using a credit line provided by their bank when they lack the necessary funds in their linked accounts or wallets.

Back in April 2023, the RBI introduced a proposal to broaden the reach of the Unified Payments Interface (UPI) by allowing transfers to and from pre-sanctioned credit lines at banks. At present, savings accounts, overdraft accounts, prepaid wallets, and credit cards can be linked to UPI.

The circular titled ‘Operation of Pre-Sanctioned Credit Lines at Banks through UPI’ reveals that the scope of UPI is expanding to include credit lines as a funding account. “Under this facility, payments through a pre-sanctioned credit line issued by a Scheduled Commercial Bank to individuals, with the prior consent of the individual customer, are enabled for transactions using the UPI System,” stated the RBI.

“Banks may, as per their board-approved policy, stipulate terms and conditions of use of such credit lines. The terms may include, among other items, credit limit, period of credit, rate of interest, etc.,” the statement noted.

“Banks are authorized to stipulate terms and conditions for the use of such credit lines in accordance with their board-approved policies. These terms may encompass aspects such as credit limits, credit duration, interest rates, and more,” the statement noted. This move holds the potential to reduce the cost associated with such financial offerings and foster the development of unique products tailored to the Indian market.

The UPI serves as a robust payment platform, accommodating a wide range of features. Presently, it manages 75% of India’s retail digital payment volume, and its capabilities have been harnessed to create products and features aligned with India’s digital payment objectives. Most recently, RuPay credit cards were granted permission to be linked to UPI. Currently, UPI transactions are facilitated between deposit accounts at banks, occasionally involving intermediaries such as prepaid instruments and wallets.

The UPI, utilized for instant money transfers via mobile devices around the clock, achieved a remarkable milestone by surpassing 10 billion transactions in August. In July, there were 9.96 billion (996.4 crore) UPI transactions, and in June, the figure was 9.33 billion, as reported by PTI. This initiative has the potential to lower expenses and facilitate the creation of innovative products tailored to the Indian market.

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