RBI proposes to expand UPI’s reach to enable lending through pre-approved bank lines

The Reserve Bank of India (RBI) is proposing to expand the reach of the popular Unified Payments Interface (UPI) digital payment system by allowing loans to be offered through pre-approved bank lines.

“This initiative will further encourage innovation,” RBI Governor Shakkanta Das said on Thursday when announcing the central bank’s monetary policy decision.

UPI is an instant, real-time payment system that allows users to transfer money across multiple banks without revealing bank account details. Its popularity is said to have reduced the use of cash and debit cards for day-to-day transactions.

In March 2023, UPI recorded 8.65 billion transactions worth Rs.14.05 trillion, the highest since its inception, data from the National Payments Corporation of India showed.

To encourage digital payments, RBI recently allowed RuPay credit cards to be linked to UPI. This should allow customers to link their credit cards and pay via UPI.

By allowing banks to offer customers a pre-approved line of credit, UPI accounts could now offer an alternative to credit cards, said Srinath Sridharan, an independent policy researcher. “It could change the way banks look at credit cards.”

During his visit to India last month, Bill Gates praised the UPI digital payment system, the digital infrastructure and the reliable and affordable 5G connectivity.

In February, India also linked its UPI and Singapore’s PayNow digital payments system for cross-border transactions. Linking these two payment systems of both countries would allow residents of both countries to make cross-border transfers faster and cheaper.

---