Operation of Pre-Sanctioned Credit Lines at Banks through Unified Payments Interface (UPI)
The Reserve Bank of India (RBI) has announced a significant expansion in the scope of the Unified Payments Interface (UPI) through its Statement on Developmental and Regulatory Policies dated April 06, 2023. This expansion enables the transfer to and from pre-sanctioned credit lines at banks, marking a pivotal enhancement in the UPI system. Previously, UPI users could link their savings accounts, overdraft accounts, prepaid wallets, and credit cards to the platform. With this new directive, the inclusion of credit lines as a funding account broadens the versatility and utility of UPI.
Under this facility, individuals can make payments through a pre-sanctioned credit line issued by a Scheduled Commercial Bank. However, this service requires the prior consent of the individual customer, ensuring that the user is fully aware and has agreed to the terms of using the credit line for UPI transactions. This consent mechanism underscores the importance of customer authorization in financial transactions, aligning with the principles of customer protection and informed consent.
Scheduled Commercial Banks play a crucial role in implementing this facility. They are authorized to stipulate the terms and conditions of use for these credit lines based on their Board-approved policies. These terms may include critical factors such as the credit limit, the period of credit, the rate of interest, and other relevant conditions. By defining these parameters, banks can tailor the credit lines to suit the financial profiles and needs of their customers while managing risks effectively.
The directive to expand UPI’s scope to include pre-sanctioned credit lines is issued under Section 10(2) read with Section 18 of the Payment and Settlement Systems Act, 2007 (Act 51 of 2007). Section 10(2) empowers the RBI to lay down policies relating to the regulation and supervision of payment systems, while Section 18 provides the RBI with the authority to issue directions to system providers, ensuring the smooth operation and integrity of the payment systems.
This initiative by the RBI is expected to have far-reaching implications for the digital payments ecosystem in India. By allowing credit lines to be linked with UPI, the RBI aims to enhance the flexibility and convenience of digital transactions. Customers can now access credit seamlessly and use it for various purposes, from daily expenses to emergency needs, all through the UPI platform.
Moreover, this move is likely to encourage financial inclusion by providing easier access to credit for a broader segment of the population. It can also foster greater competition among banks to offer attractive credit terms, ultimately benefiting consumers. However, it is essential for banks to implement robust measures to ensure the secure and responsible use of these credit lines, mitigating potential risks associated with digital lending and borrowing.
In conclusion, the inclusion of pre-sanctioned credit lines in UPI marks a significant step forward in India’s digital payment landscape. It offers enhanced flexibility for users and opens new avenues for accessing credit, reinforcing UPI’s position as a versatile and comprehensive payment platform.
