You now get pre-approved credit lines from small finance banks
What's the story
The Reserve Bank of India (RBI) has expanded the capabilities of Unified Payments Interface (UPI) by allowing transactions through pre-sanctioned credit lines.
The feature, which was previously limited to larger banks, has now been made available for Small Finance Banks (SFBs) as well.
The move is aimed at offering instant short-term credit without having to apply for a separate loan.
UPI enhancement
UPI expansion includes credit lines as funding account
The RBI's move to allow SFBs to offer pre-approved credit lines via UPI comes as part of a larger effort to improve the payment interface.
Earlier, only savings accounts, overdraft accounts, prepaid wallets, and credit cards could be linked with UPI.
Now, with this expansion, credit lines have also been added as a possible funding account.
User agreement
Customer consent and transparency
To maintain transparency and prevent misuse, customers will have to provide explicit consent before using a pre-approved credit line via UPI.
This was detailed in an RBI notification dated today.
The notification also clarified that the banks can determine the terms of these credit lines as per their board-approved policy.
Credit conditions
Banks to determine terms of credit lines
The RBI notification further said that banks are free to decide the terms and conditions of these credit lines.
These may include things like the credit limit, period of credit, and rate of interest among others.
If priced competitively, these UPI transactions linked to pre-sanctioned credits could possibly provide a more cost-effective alternative to traditional credit cards or personal loans.
Account linking
How to link credit line account on UPI
To link a credit line account on UPI, users would have to download the UPI app and choose 'Credit Line' as an option while registering.
After selecting their issuing bank name from the dropdown menu, the available Credit Line linked to their mobile number will be displayed on the screen.
They can then select and confirm this Credit Line account for linkage.