The Reserve Bank of India (RBI) circular titled ‘Operation of Pre-Sanctioned Credit Lines at Banks through UPI’ announced the inclusion of pre-sanctioned credit lines as funding accounts in Unified Payments Interface (UPI). This decision broadens the scope of UPI by incorporating credit lines as a funding account.
Background: In the “Statement on Development and Regulatory Policies” dated April 6, 2023, the RBI proposed to enhance the functionality of the UPI by incorporating pre-sanctioned credit lines at banks into the system.
What is Credit Line in UPI?
- A credit line in UPI refers to a pre-approved amount of credit that a bank offers to its customers. This credit line allows customers to make transactions or payments even if they don’t have sufficient funds in their bank account at that moment. It’s essentially a short-term loan or credit limit that the bank provides to the customer with applicable fees or interest
i. The circular applies to Scheduled Commercial Banks, excluding Payment Banks, Small Finance Banks, and Regional Rural Banks.
ii.This directive is issued under Section 10(2) read with Section 18 of the Payment and Settlement Systems Act, 2007 (Act 51 of 2007).
iii. Before the expansion, UPI allowed linking of savings accounts, overdraft accounts, prepaid wallets, and credit cards.
iv. Payments through these pre-sanctioned credit lines, issued by Scheduled Commercial Banks to individuals, can be made through the UPI system with the prior consent of the individual customers.
v. Banks can establish terms and conditions for the use of these credit lines, including credit limits, credit periods, interest rates, in accordance with their board-approved policies.
- The RBI’s expansion of UPI’s scope aligns with India’s goals for digitizing payments and fostering financial inclusion.
Unified Payments Interface (UPI):
UPI is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood. It also caters to the “Peer to Peer” collect request which can be scheduled and paid as per requirement and convenience.
- Pilot launch: April 11, 2016
- UPI enabled apps launch: August 25, 2016
- Developed by: National Payments Corporation of India (NPCI)
- Launched by: Dr. Raghuram G Rajan (Ex-RBI Governor)
- In August 2023, UPI transactions achieved significant milestones, surpassing 10 billion transactions.
Significance: UPI is a robust and widely used platform for immediate money transfers through mobile devices, handling 75% of the retail digital payments volume in India.
About Reserve Bank of India (RBI):
Governor– Shaktikanta Das
Headquarters– Mumbai, Maharashtra
Established – April 1, 1935