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RBI allows pre-sanctioned credit lines through UPI

The Reserve Bank of India (RBI) has announced a significant expansion of the Unified Payments Interface (UPI) System, allowing users to transact with pre-sanctioned credit lines issued by banks. This move marks a major development in India’s digital payment landscape, enabling greater financial flexibility and convenience for consumers.

Expanding the UPI Scope:

  • The UPI System was primarily used for transactions involving deposited amounts. However, as of April 6, 2023, the RBI has proposed an expansion of the UPI System to include pre-sanctioned credit lines.
  • This means that individuals can now make transactions using credit lines that have been pre-approved by scheduled commercial banks.

Inclusion of Various Accounts:

  • The UPI System’s scope has been expanded to include various types of accounts, including savings accounts, overdraft accounts, prepaid wallets, and credit cards.
  • This comprehensive approach aims to provide users with more options and flexibility when conducting digital transactions.

Key Details of the RBI Circular:

The RBI’s circular on the “Operation of Pre-Sanctioned Credit Lines at Banks through UPI” provides important guidelines for this expansion. Here are the key details:

  • Customer Consent: Transactions using pre-sanctioned credit lines will require the prior consent of the individual customer.
  • Bank Policies: Banks will have the flexibility to stipulate terms and conditions for the use of these credit lines. These terms may include credit limits, credit periods, interest rates, and more, as per their board-approved policies.
  • Cost Reduction: This expansion is expected to reduce the cost associated with such offerings and facilitate the development of unique financial products tailored to the Indian market.

UPI’s Dominance in Digital Payments:

  • The UPI System has established itself as a robust and widely adopted payments platform in India.
  • Currently, it handles a staggering 75% of the retail digital payments volume in the country.
  • Over time, UPI has evolved to align with India’s digitization goals, with recent developments allowing RuPay credit cards to be linked to the UPI platform.

Growing Transaction Volume:

  • The popularity of UPI continues to soar, with transaction volumes surpassing significant milestones.
  • In August, UPI transactions crossed the 10-billion-mark, highlighting its integral role in the Indian digital payments landscape.
  • Notably, July recorded 9.96 billion transactions (996.4 crore), and June saw 9.33 billion transactions.

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