Credit on UPI: In the situation that your savings account is running low towards the end of the month, you will soon have access to a pre-approved credit line on the Unified Payments Interface (UPI) that can be utilised during transactions.
Banks testing the credit on UPI feature
During the Global Fintech Festival (GFF) in September, the National Payments Corporation of India (NPCI) demonstrated the functionality of this feature. Banks including Axis Bank, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Punjab National Bank (PNB), and the State Bank of India (SBI), among others, are currently testing this feature with a select group of users on payment apps like Bharat Interface for Money (BHIM), PayZapp, Paytm, and GPay.
According to these banks, the service will be progressively extended to a larger customer base in the coming months. In April, Reserve Bank of India (RBI) governor Shaktikanta Das had unveiled plans for a collateral-free, pre-approved credit line or borrowing limit that users could access through their banks using the UPI platform.
How credit on UPI works?
Each UPI account is associated with a savings account at a bank. To access the credit line through the UPI service, users must formally apply to their bank. The bank will then evaluate the applicant’s financial details, which may include criteria like eligibility, income, credit history, and repayment track record.
Depending on the bank‘s guidelines, applicants might need to provide supporting documentation, such as income statements, proof of identity, proof of address, and other relevant paperwork. The specific application procedures and prerequisites for a UPI credit line may differ among financial institutions. Once the bank reviews the application and accompanying documents, if it’s approved, they will inform the applicant of the approved credit limit and its associated terms.
End user benefits with credit on UPI
Integrating a credit line with their UPI app can be advantageous for individuals who are proficient in managing credit, potentially eliminating the need for multiple credit cards. However, it remains to be seen whether banks will extend traditional credit card benefits, such as reward points, to customers utilizing credit lines through UPI. The rewards rate may not be substantially higher for credit line users due to the absence of the merchant discount rate (MDR), which is the fee paid by merchants to credit card payment processing companies.
Interest rate and duration with credit on UPI
The duration of a UPI credit line can vary, spanning from a few months to several years. Banks may present borrowers with choices for both short-term and long-term credit lines, enabling them to select a repayment period that aligns with their requirements. The interest rates for the credit line may fluctuate based on factors such as the bank’s policies, the borrower’s creditworthiness, and prevailing market conditions.
Users have the flexibility to employ the credit at the point of transaction and convert it into equated monthly installments (EMIs). This feature can be particularly helpful for new-to-credit (NTC) customers in building their credit score gradually. Nonetheless, it’s important to exercise caution and use credit responsibly to avoid falling into a debt trap, similar to credit cards.