RBI’s proposal to expand UPI’s scope by enabling pre-approved credit lines
On Thursday, April 6, the Reserve Bank of India (RBI) suggested that banks should enable consumers to be provided with pre-approved credit limits via UPI, “expanding the scope” of the Unified Payment Interface (UPI).
The RBI’s “Statement on Developmental and Regulatory Policies,” released following the Monetary Policy Committee (MPC) meeting, suggests broadening the use of UPI by facilitating transfers to/from pre-approved credit lines at banks in addition to deposit accounts. This change will make it easier to make payments supported by bank credit through the UPI network. In other words, customers will be able to obtain credit in the same way that they do with credit cards, and can only transfer this amount via UPI to other banks or wallets.
However, the most recent disclosure will change this. A client can use a pre-approved credit line from a bank, even if their account balance is low, say one lakh Indian rupees, using UPI. The Central Bank is taking another step to expand the formal credit economy with this action. According to the RBI, the move would “reduce the cost of such offerings (credit lines) and help in the development of unique products for Indian markets.” RBI Governor Shaktikanta Das stated that it will promote innovation.
The Central Bank will however publish comprehensive recommendations on the matter separately. The plan should also be extended to Non-Banking Financial Institutions (NBFCs) that provide revolving loan products to retail and small business consumers, according to Rajesh Sabhlo, MD for Asia Pacific at fintech SaaS platform Vymo. Utilizing digital platforms would assist these businesses in growing their consumer base and increasing productivity. The most recent change occurs over a year after the RBI forbade organizations without a banking license from adding credit lines to prepaid payment instruments (PPIs). The business plans of several firms, including unicorns like Slice, Jupiter, and Fi, were rocked by this news.
How will this benefit the UPI users?
“Up until now, UPI payments could be made using bank debit accounts and RuPay credit cards.” Today’s news expands on UPI’s existing benefits by allowing users to link their credit accounts, including loan accounts, making them payable via UPI. This would assist to simplify credit utilisation for clients by using the flexibility that UPI provides’, said Adhil Shetty, CEO of BankBazaar.com.
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