Monetary policy review: UPI payments via pre-sanctioned bank credit soon

This new feature could be seen as a substitute for credit card, which has limited reach, experts say

After allowing the RuPay credit card to be linked to Unified Payments Interface (UPI), enabling payment through credit on UPI, the Reserve Bank of India (RBI) has proposed expanding the scope of the payments platform by enabling transfer to/from pre-sanctioned credit lines at banks.

This means the UPI network will facilitate payments financed by credit from banks. According to the RBI, this can reduce the cost of such offers and help in developing unique products for Indian markets.

Industry experts are of the opinion with this feature the use of UPI on the credit side will go up, translating into increased access to institutional credit. Further, many are seeing this as a substitute for the credit card.

“UPI, which involves transactions between deposit accounts or wallets, will expand further into credit lines given by banks. So, in a sense, one can reduce the number of cards one carries and do those transactions on UPI rails,” said T Rabi Sankar, deputy governor, RBI, in the post-policy briefing with the media.

According to Zarin Daruwala, cluster chief executive officer, India and South Asia markets, Standard Chartered Bank, this could broadbase credit delivery and promote UPI-based revolving credit products.

Akhil Handa, chief digital officer, Bank of Baroda, said: “This can augment the use of credit cards. Until now only RuPay was linked to UPI. However, with this announcement, Visa and MasterCard credit limits can also be linked. This will increase the acceptance points for credit-based payments. The acceptance points for credit cards are limited in the country due to the need for physical infrastructure. But UPI has a much larger acceptance network. So, the RBI allowing sanctioned credit limits on UPI will now enhance the use of credit for merchant payments.”

RBI Governor Shaktikanta Das said: “Recently RuPay was permitted to be linked to UPI. This was in addition to the existing facility of linkage of UPI with deposit accounts. It is now proposed to expand the scope of UPI by permitting operation of pre-sanctioned credit lines at banks through the UPI. This initiative will further encourage innovation.”

DIGITAL BET

• 75% retail digital payments volume handled by UPI­
• Typically, UPI is used for deposit account transfers between remitter and beneficiary
• RBI had earlier introduced the concept of credit in UPI by allowing linkage of RuPay credit cards

“It’s a pre-sanctioned credit line. That means a credit line has been sanctioned by the bank and the customer can now operate through UPI.”

Naveen Surya, founder of the FinTech Convergence Council and chairman emeritus of the Payments Council of India, said: “This creates a new, innovative way to democratise credit distribution in the country, similar to digital payments. This can lead to more innovation, collaboration, and partnerships between banks and fintechs.”

This could be like an overdraft facility on current accounts but is meant for savings accounts, he said.

According to Harish Prasad, head of banking, India, at FIS, the RBI’s announcement is a milestone decision that could reignite the digital lending and the “Buy Now Pay Later (BNPL)” space. “With the restrictions earlier imposed on disbursements into prepaid wallets and cards from credit-lines and loans, many BNPL players had to resort to tenuous workarounds to continue to deliver a seamless purchase experience. With the UPI channel opened up for access to credit lines, the point-of-purchase credit experience becomes seamless and opens up avenues to use credit across a much larger merchant base. This has the potential to drive transformational growth for the BNPL lending sector.”