UPI to now allow borrowers to access digital credit lines from banks

The Reserve Bank of India (RBI) has permitted banks to use the Unified Payments Interface to operate pre-approved credit lines (UPI). On April 6,2023, RBI Governor Shaktikanta Das made this declaration while delivering the outcomes of the bimonthly monetary policy committee meeting.

"Scope of UPI to be expanded, by permitting operation of pre-sanctioned credit lines at banks, through UPI. This will further encourage innovation," said Das.

"At present, UPI transactions are enabled between deposit accounts at banks, sometimes intermediated by pre-paid instruments including wallets. It is now proposed to expand the scope of UPI by enabling transfer to/from pre-sanctioned credit lines at banks, in addition to deposit accounts. In other words, UPI network will facilitate payments financed by credit from banks," RBI said.

"The RBI's forward-thinking decision to allow pre-sanctioned credit lines at banks to be accessible through UPI will drive innovation and revolutionise the way customers access credit. We believe this is a significant step towards a more efficient and digital banking ecosystem and will undoubtedly provide a much-needed boost to the industry. The ability to access pre-sanctioned credit lines through UPI will prominently help in reduction of the time and effort required for customers to secure loans, ultimately driving economic growth and development," India Head of Development, Banking and Payments, at FIS Rajsri Rengan.

What is a credit line?

When a consumer applies for a credit line loan, the lending institution approves a certain amount for them. The user may withdraw whatever money that they need at any time from this permitted amount. Keep in mind that the consumer is only required to pay interest on the amount he has withdrawn.

How will this move benefit UPI users?

"Up until now, UPI could be linked to bank debit accounts and RuPay credit cards for making payments. Today’s announcement adds to UPI’s existing benefits and will enable customers to link their credit accounts, including loan accounts, making them accessible for payment via UPI. This will help to simplify customers’ utilization of credit by leveraging the flexibility that UPI has to offer," said Adhil Shetty, CEO, BankBazaar.com.

"With this expansion, UPI customers can will now have more flexibility and convenience when managing their money. Users' access to credit may also become more affordable as a result of banks using UPI's low-cost infrastructure to offer credit products at lower costs. This is a positive step for the economy as a whole as well, since this will result in boosting digital payments across the country which in turn can result in development of innovative credit products for the Indian customers," said Karan Mehta, CTO, RING.

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