The Reserve Bank of India (RBI) proposed ‘expanding the scope’ of the Unified Payment Interface (UPI) on Thursday (April 6) by allowing banks to offer pre-approved credit lines to UPI users.
“In addition to deposit accounts, it is now proposed to broaden the scope of UPI by allowing transfers to/from pre-approved credit lines at banks.” In other words, the UPI network will enable payments financed by bank credit,” the RBI stated in its ‘Statement on Developmental and Regulatory Policies’ following the Monetary Policy Committee (MPC) meeting.
In other words, the move will allow users to obtain credit in the same way that they do with credit cards. For example, if a customer currently has an account balance of INR 50,000, he can only transfer this amount via UPI to other banks or wallets.
However, the most recent announcement will alter this. If a bank has granted a customer a pre-approved credit line of, say, INR 1 Lakh, the customer can use this line through UPI even if the account balance is low.
The move is part of the central bank’s ongoing efforts to bring more people into the formal credit economy.
The move, according to the RBI, will “reduce the cost of such offerings (credit lines) and aid in the development of unique products for Indian markets,” while RBI Governor Shaktikanta Das stated that it will encourage innovation.
However, the central bank will issue detailed guidelines on the subject separately.
Rajesh Sabhlo, MD for Asia Pacific at fintech SaaS platform Vymo, commented on the RBI’s announcement, saying, “The proposal should also be extended to non-banking financial companies (NBFCs) that offer revolving credit products to retail and small business customers.” This would assist these businesses in expanding their customer base and improving efficiency through the use of digital platforms.”
