RBI on Monday issued operating guidelines for credit lines through UPI.
Currently, savings accounts, overdraft accounts, prepaid wallets, and credit cards can be linked to UPI.
As per the latest announcement of the central bank, the scope of UPI is now being expanded by the inclusion of credit lines as a funding account. In other words, the UPI network will facilitate payments financed by credit from banks. Under this facility, payments through a pre-sanctioned credit line issued by a Scheduled Commercial Bank to individuals, with the prior consent of the individual customer, are enabled for transactions using the UPI System.
Banks may stipulate terms and conditions of use of such credit lines as per their Board approved policy. The terms may include, among other items, credit limit, period of credit, rate of interest, etc.
The pre-sanctioned credit line is similar to a loan wherein a bank offers consumers credit without the need for a credit or debit card. The facility saves a significant amount in disbursal and distribution costs of the banks. This move also allows banks to develop new-age credit products catering to consumers’ evolving needs.