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RBI Allows Pre-Sanctioned Credit Lines Via UPI
The Reserve Bank of India (RBI) on Thursday proposed expanding the reach of the Unified Payments Interface (UPI) digital payments system by allowing transfers to/ from pre-sanctioned credit lines at banks.
Governor Shaktikanta Das made the announcement while announcing the outcomes of the bimonthly monetary policy committee meeting on April 6, 2023. “The scope of UPI will be expanded by allowing the operation of pre-approved credit lines at banks via UPI. This will encourage even more innovation “Das stated.
“UPI transactions are currently permitted between bank deposit accounts, sometimes via pre-paid instruments such as wallets. 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 facilitate payments financed by bank credit “The RBI stated.
“The RBI’s forethought in allowing pre-approved credit lines at banks to be accessible via UPI will drive innovation and revolutionize the way customers access to credit.” We believe this is a significant step towards a more efficient and digital banking ecosystem, and it will undoubtedly provide the industry with a much-needed boost. The ability to access pre-approved credit lines via UPI will significantly reduce the time and effort required for customers to secure loans.
What is a credit line?
In the case of credit line loans, the lending institution approves an amount for the customer. The user can withdraw any amount he or she wants from this approved amount at any time. Remember that the customer must only pay interest on the amount withdrawn.
UPI growth
According to National Payments Corporation of India (NPCI) data, UPI recorded its highest-ever number of transactions in March 2023, with 8.7 billion. Real-time payments have increased by 60% year on year.
Das previously stated that UPI payments have grown exponentially in the last 12 months, with daily transactions surpassing 36 crores, up 50% from 24 crores in February 2022.
“A recent pan-India digital payments survey (covering 90,000 respondents) revealed that 42% have used digital payments,” Das said in March.
How will this change benefit UPI users?
“UPI could previously be linked to bank debit accounts and RuPay credit cards for payment. Today’s announcement expands on UPI’s existing benefits by allowing customers to link their credit accounts, including loan accounts, making them payable via UPI. This will help to simplify credit utilization for customers by leveraging the flexibility that UPI provides “Adhil Shetty, CEO of BankBazaar.com, elaborated.
“UPI customers will now have more flexibility and convenience when managing their money as a result of this expansion. Users’ access to credit may also become more affordable as banks use UPI’s low-cost infrastructure to offer lower-cost credit products. This is a positive step for the economy as a whole, as it will increase digital payments across the country, potentially leading to the development of innovative credit products for Indian customers “RING CTO Karan Mehta stated.
This move could lower the cost of such offerings while also assisting in the development of unique products for Indian markets. The regulator stated that detailed instructions in this regard will be issued separately.
“This advancement will significantly improve the convenience and accessibility of credit for customers, assisting in driving financial inclusion to the last mile in India. UPI has made it possible for millions of people to conduct transactions and access services more easily, and its impact can be felt not only in cities but also in rural areas “Dilip Modi, Founder of Spice Money, elaborated.
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