RBI Allows Banks To Offer Credit Lines To Customers Through UPI

In line with its announcement earlier this year, the Reserve Bank of India (RBI) has now allowed scheduled commercial banks to offer credit lines to their customers through the Unified Payments Interface (UPI).

The move is expected to further increase the usage and scope of the payments interface. Till now, customers could link savings accounts, overdraft accounts, prepaid wallets, and credit cards with their UPI accounts. 

“Under this facility, payments through a pre-sanctioned credit line issued by a scheduled commercial bank to individuals, with prior consent of the individual customer, are enabled for transactions using the UPI system,” the central bank said in a circular issued to the banks.

Essentially, credit line on UPI is like a BNPL product, where customers can make payments using the credit line assigned by the bank to them if they don’t have the required balance in their linked accounts/wallets.

The RBI said that the banks may stipulate terms and conditions for credit lines as per their board-approved policies. These terms may include credit limit, period of credit, interest rate, among others.

The move is part of the central bank’s efforts to increase the penetration and scope of UPI. Digital payments have grown by leaps and bounds in India over the last few years, thanks to UPI.

The RBI has been constantly making new announcements related to UPI to increase its penetration in the country. It proposed allowing credit lines on UPI after its Monetary Policy Committee (MPC) meeting in April this year. 

The RBI then said that it would reduce the cost of credit lines and help in the development of unique products for Indian markets.

There were demands from some quarters that non-banking financial companies (NBFCs), which offer credit products to retail and small businesses, should also be included under credit lines on UPI. However, the RBI hasn’t heeded to these demands.

The central bank introduced the offering after disallowing non-bank fintech players from loading their prepaid payment instruments (PPIs) with credit lines in mid 2022, which had come as a major blow to the Indian fintech players like KreditBee, jupiter, slice, and LazyPay. 

Meanwhile, the UPI ecosystem continues to show robust growth. It saw over 1,000 Cr monthly transactions in August 2023 for the first time in seven years.

Recently, RBI Governor Shaktikanta Das also proposed two new technologies for UPI – allowing conversational payments on UPI and small-ticket payments using Near Field Communication through the UPI Lite on-device wallet.