RBI allows UPI linking with pre-sanctioned credit lines from banks

Central bank proposal could strengthen digital lending and buy now pay later businesses, says one expert

The Reserve Bank of India (RBI) on Thursday proposed expanding the reach of the Unified Payments Interface (UPI) digital payments system by allowing transfer to/ from pre-sanctioned credit lines at banks.

 “This can reduce the cost of such offerings and help in development of unique products for Indian markets,” said RBI in its Statement on Developmental and Regulatory Policies.

The central bank earlier allowed RuPay credit cards to be linked to UPI, enabling payments through credit on India’s flagship digital payments’ platform that is mostly used for “pay now”. Before card linkage was allowed, UPI transactions essentially meant fund transfer between remitters and beneficiaries’ current or savings accounts.

 

After being linked with UPI, the sanctioned limit on a RuPay credit card can be used to make payments to a merchant who pays a charge for accepting such payments. The facility expanded the scope of payments with credit as a source and the RBI’s latest announcement will strengthen the UPI network being used to facilitate payments financed by credit.

“Recently, RuPay credit cards were 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,” said RBI Governor Shaktikanta Das.

“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,” said Das in a post-monetary policy press meeting.

According to Harish Prasad, head of banking, India at FIS, the RBI’s announcement to allow access to pre-sanctioned credit lines via UPI is a milestone decision that could strengthen digital lending and Buy Now Pay Later (BNPL) businesses.

“With the restrictions which were earlier imposed on disbursements into prepaid wallets and cards from credit-lines and loans, many BNPL players had to resort to tenuous work-arounds 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,” he said.

M Rajeshwar Rao, RBI deputy governor, said at the press meeting, “The guidelines are very clear. It is supposed to be a sanctioned limit into the account and thereafter the transfers can take place. There is no linkage to the BNPL model as it stands today”.

“UPI, which currently involves transactions between deposit accounts or wallets, will now expand further to credit lines given by banks. So, in a sense, one can actually reduce the number of cards they carry and do those transactions on UPI rails,” said T Rabi Sankar, RBI deputy governor.