In a bid to expand the use of the Unified Payments Interface (UPI) and the consumer credit market in the country, the Reserve Bank of India has now permitted the inclusion of pre-approved credit lines or loans as a funding account for transactions made through the UPI system with prior customer agreement. In its latest circular, RBI allowed banks to offer credit lines for UPI transactions. The bank regulator said that the lenders may stipulate the terms and conditions of use of such credit lines for customers.

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Notably, this comes months after RBI approved the transfer of pre-sanctioned credit lines through UPI networks.

RBI allows RBI UPI pre-approved loan

The central bank on Monday, September 4, in its circular on 'Operation of Pre-Sanctioned Credit Lines at Banks through UPI' stated that the scope of UPI is being expanded by including 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 circular said.

It also said that banks can stipulate the terms and conditions while using the credit lines on the basis of their board-approved policy. "The terms may include, among other items, credit limit, period of credit, rate of interest, etc.," the circular added.

Benefits of pre-approved credit lines

The inclusion of pre-approved credit lines through UPI transactions will help in reducing the cost of such offerings. It will also help in the development of unique products for Indian markets.

To break it down, if a customer has a pre-approved credit line of Rs 60,000, then he/she may be able to use it as a loan for payments (loan) through UPI transactions. This will help customers to make their payments in a more swift and convenient manner.

It’s important to note that UPI transactions are enabled between deposit accounts at banks, and sometimes are also intermediated by pre-paid instruments (PPI) like wallets.

RBI allows transfer of pre-sanctioned credit lines through UPI

In April this year, RBI proposed to expand the reach of the UPI system in India by allowing transfer to or from pre-sanctioned credit lines at banks. This was done in a bid to reduce the cost of such offerings and help in the development of unique products for Indian markets.

In another move, the central bank had earlier allowed the linking of RuPay credit cards with UPI to enable payments through credit.