RBI Allows Pre-Sanctioned Credit Lines Via UPI; Here’s What It Means And How It Will Benefit You

In a surprising move, the governor Shaktikanta Das has announced that the MPC with a 5 out of 6 members majority has decided to keep the rates unchanged at 6.5 per cent. 

In another significant move, the RBI’s MPC announced the pre-sanctioned credit lines at banks through the UPI (unified payments interface) on Thursday. The initiative will encourage innovations and widen footprints of UPI, RBI governor said while announcing the bi-monthly monetary policy.

This move is considered as a game changer, as UPI has performed exceptionally well recently by increasing its ambit on the global parameter through collaboration with Singapore based MAS and allowing G20 countries to use it at selected airports in India.

"UPI has transformed retail payments in India. UPI’s robustness has been leveraged to develop new products and features from time to time," Das said.

As per RBI data, UPI presently handles 75 per cent of the retail digital payments volume in India.UPI has met the India’s payments digitalisation goals. 

Currently, UPI transactions are enabled between deposit accounts at banks, sometimes intermediated by pre-paid instruments including wallets. 

The RBI governor said in his speech, “It is now proposed to expand the scope of UPI by enabling transfer to/from pre-sanctioned credit lines at banks, in addition to deposit accounts. In other words, UPI network will facilitate payments financed by credit from banks. This can reduce the cost of such offerings and help in development of unique products from Indian markets.”

What Does This Means?

The announcement means that the borrowers will now have access to digital credit lines from banks via UPI.

The banks will now be able to offer credit products without actually issuing a physical credit card or requiring bulky, expensive physical acceptance infrastructure such as a swipe machine. 

Simply put, a pre-sanctioned credit line from banks means pre-approved credit, which is essentially credit that banks would have approved for customers based on data analytics carried out on internal deposit customers, as per the CNBC report. This may also include non-customers whose credit bureau and other information may have been analysed by the banks.

How Will This Benefit Customers?

This will immediately reduce the number of cards customers have to carry and now they can easily make the transaction via UPI. This will reduce the time and effort required for the customers to secure a simple loan. It will bring a new era of digital lending and also to the concept of ‘buy now, pay later’.

UPI Data

According to National Payments Corporation of India (NPCI), transactions on the UPI platform advanced by 60 per cent year-on-year in March to a record 8.7 billion.