RBI permits banks to provide credit lines through UPI
By MYBRANDBOOK
According to a recent Reserve Bank of India circular, scheduled commercial banks in India can provide credit lines using the Unified Payments Interface (UPI). The RBI wants to increase UPI's use and accessibility by offering pre-approved credit lines. This action fits with the national financial inclusion strategy of the central bank, which promotes digital payments.
Prior to this, only the amount that had been deposited was allowed to transact through UPI System.
In order to widen the opportunity of the Unified Payments Interface, the Reserve Bank on April 6, 2023, proposed to enable transfer to/from pre-sanctioned credit lines at banks.
At present, savings accounts, overdraft accounts, prepaid wallets and credit cards can be linked to UPI.
As per the Reserve Bank circular on 'Operation of Pre-Sanctioned Credit Lines at Banks through UPI', the scope of the UPI has been expanded with the inclusion of credit lines as a funding account.
"Under this facility, payments through a pre-sanctioned credit line issued by a Scheduled Commercial Bank to individuals, with the prior consent of the individual customer, are enabled for transactions using the UPI System," the RBI said.
“Banks may, as per their board approved policy, stipulate terms and conditions of use of such credit lines. The terms may include, among other items, credit limit, period of credit, rate of interest, etc," as per the release.
This can reduce the cost of such offerings and help in development of unique products for Indian markets.
The UPI is a robust payments platform supporting an array of features. Presently it handles 75% of the retail digital payments volume in India. The UPI system has been leveraged to develop products and features aligned to India’s payments digitisation goals. Recently, RuPay credit cards were permitted to be linked to UPI. At present, UPI transactions are enabled between deposit accounts at banks, sometimes intermediated by pre-paid instruments including wallets.
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