Introduction: The Reserve Bank of India (RBI) has issued a directive dated September 4, 2023, aimed at broadening the capabilities of the Unified Payments Interface (UPI). The directive authorizes Scheduled Commercial Banks to link pre-sanctioned credit lines with UPI, a move set to increase the payment options available to UPI users. This article breaks down the directive and discusses its implications.
UPI Expansion: The RBI’s directive stems from a Statement on Developmental and Regulatory Policies released on April 6, 2023. According to this latest directive, pre-sanctioned credit lines will join the list of funding accounts that can be linked to UPI, which already includes savings accounts, overdraft accounts, prepaid wallets, and credit cards.
Benefits to Customers: This facility will enable transactions through a pre-sanctioned credit line that an individual holds with a Scheduled Commercial Bank, subject to the person’s prior consent. This adds another layer of convenience, giving customers an additional funding source for UPI transactions.
Bank Policies: The RBI also permits the banks to develop their own board-approved policies regarding the terms and conditions for the use of such credit lines. Such terms can cover various aspects, including the credit limit, interest rates, and the period for which the credit is available.
Regulatory Framework: The RBI’s directive is rooted in Section 10(2) and Section 18 of the Payment and Settlement Systems Act, 2007. This legal backing ensures that the directive is enforceable and also subjects it to the regulatory oversight of the RBI.
Conclusion: The RBI’s decision to include pre-sanctioned credit lines as a funding source for UPI transactions is a progressive step that could potentially increase the adoption and usage of UPI. It provides greater flexibility to consumers and allows banks to offer more nuanced financial products. As with any new financial offering, the specifics will be crucial, and it will be interesting to see how different banks structure their terms to attract customers to this new feature. Overall, this directive exemplifies the RBI’s commitment to enhancing digital payment infrastructure in India.
Reserve Bank of India
RBI/2023-24/58
CO.DPSS.POLC.No.S-567/02-23-001/2023-2024 Dated: September 04, 2023
The Managing Director / Chief Executive Officer
Scheduled Commercial Banks (excluding Payment Banks, Small Finance Banks and Regional Rural Banks)
Madam / Dear Sir,
Operation of Pre-Sanctioned Credit Lines at Banks through Unified Payments Interface (UPI)
Please refer to the Statement on Developmental and Regulatory Policies dated April 06, 2023, expanding the scope of UPI by enabling transfer to / from pre-sanctioned credit lines at banks. Currently, savings account, overdraft account, prepaid wallets and credit cards can be linked to UPI. As announced, the scope of UPI is now being expanded by inclusion of credit lines as a funding account.
2. Under this facility, payments through a pre-sanctioned credit line issued by a Scheduled Commercial Bank to individuals, with prior consent of the individual customer, are enabled for transactions using the UPI System.
3. Banks may, as per their Board approved policy, stipulate terms and conditions of use of such credit lines. The terms may include, among other items, credit limit, period of credit, rate of interest, etc.
4. This directive is issued under Section 10(2) read with Section 18 of the Payment and Settlement Systems Act, 2007 (Act 51 of 2007).
Yours faithfully,
(Gunveer Singh)
Chief General Manager-in-Charge
