RBI proposes to extend scope of UPI to allow credit through pre-approved bank lines

The Reserve Bank of India (RBI) is proposing to extend the reach of the popular digital payment system Unified Payments Interface (UPI) by enabling the supply of credit through pre-approved bank lines.

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

UPI is a real-time instant payment system that allows users to transfer money between multiple banks without disclosing their bank account details. Its popularity seems 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 14.05 trillion rupees, its highest level since its inception, according to data from the National Payments Corporation of India.

In a bid to boost digital payments, the RBI recently allowed RuPay credit cards to be linked to UPI. This was to allow customers to link their credit cards and pay through UPI.

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

Last month, Bill Gates, during his visit to India, had praised the UPI digital payment system, digital infrastructure and reliable, low-cost 5G connectivity.

In February, India also linked its UPI and Singapore’s PayNow digital payment system for cross-border transactions. The link between these two payment systems of the two countries would allow residents of the two countries to make faster and more cost-effective cross-border remittance transfers.

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