NEW DELHI: With each advancement in technology, it gets better in accessing the best of services in all spheres of life, be it banking, travel, education or health, among others. The innovation of the unified payments interface (UPI) has been a game-changer in the banking space. UPI has helped the country take last-mile banking services to the remotest of places and to the lowest strata of people.
The numbers tell the whole picture. According to the National Payments Corporation of India (NPCI), transactions on the UPI platform grew by 60% year-on-year in March to a record 8.7 billion. In terms of value, payments on the platform surged 46% year-on-year to R14.05 trillion.
The UPI is now all set to take the next big leap – making loans available to customers. The recent Reserve Bank of India’s (RBI) announcement to allow pre-sanctioned credit lines for users through UPI may revolutionise credit disbursal in the country and render the incumbent ways of borrowing redundant.
Loan through UPI
So, what is the bank-approved credit line via UPI? This is a pre-approved borrowing limit that a borrower can avail of at any time. It is more or less like a credit card payment, under which, a user can make the repayment of a loan with interest at a later date. To get this facility, the users of UPI will have to apply to the banks. There are many benefits of borrowing through UPI credit lines, as it is more flexible and there is no need to carry a physical card. In addition to this, there is also no requirement for POS or swipe machines to facilitate credit transactions.
“We have been making a lot of announcements relating to UPI in past policies. UPI’s robustness has been leveraged to develop new products and features from time to time,” RBI Governor Shaktikanta Das said recently while announcing this new measure.
The different kinds of pre-sanctioned credit lines under the RBI’s new system include credit cards, small credit lines, business credit lines, etc. It’s up to the banks to decide on the limit of each line of credit on the basis of their due diligence of borrowers like income, credit score, borrowing history etc.
According to Dilip Modi, Founder, of Spice Money, this development will significantly enhance the convenience and accessibility of credit to customers and will help in driving financial inclusion to the last mile in Bharat.
“UPI has enabled millions of people to conduct transactions and access services with ease and its impact is felt not only in urban but also in rural areas. We look forward to leveraging this initiative to create innovative solutions that will further empower our customers and help them achieve their financial goals,” Modi said.
Credit line vs traditional loan
Unlike traditional loans, credit lines are revolving (unsecured) loans where one has continuous access to a certain credit limit till the credit line is open. It is more like credit cards, where one can access a limited amount of loan if the borrower pays the interest and principal on a regular basis.
In a traditional loan, one can avail of a certain amount of loan for a limited period within which the borrower has to repay the interest and principal amount. But before availing of a credit line facility, one must know that interest in credit lines is higher than that of traditional loans.
Sugandh Saxena, CEO of, the Fintech Association for Consumer Empowerment said, “Credit-line access on the UPI network is a significant step, for it will facilitate customers’ access to affordable, need-based and reliable sources of credit. It will also bring competition and innovation for customer-centric credit products.”
However, she says, as choices expand and become complex, it must be ensured that customer protection safeguards in digital lending guidelines, including disclosures, data privacy, and cooling-off period etc, apply for customers to make informed and right decisions.
MSMEs, small traders to gain
The new facility will allow easier access to MSMEs, small traders and professionals access credit through banks. They can access collateral-free instant loans based through UPI. Not only can one access credit through this system, one can also make repayment through UPI. According to an SBI Ecowrap report, this move will help SMEs in accessing credit in a hassle-free manner. It will help in bridging the gap of R20-25 lakh crore in the credit system for MSMEs.
All under UPI ambit
Transactions on the UPI platform rose 60% Y-o-Y in March to a record 8.7 billion
Payments on the platform surged 46% y-o-y to Rs 14.05 L cr
Recently, RuPay credit cards were permitted to be linked to UPI
NPCI recently notified 1.1% interchange fee on UPI payments via prepaid instruments
UPI credit line facility will help in bridging the gap of Rs 20-25 L crore in the credit system for MSMEs
Interest is higher than traditional loan
In a traditional loan, one can avail of a certain amount of loan for a limited period within which the
borrower has to repay the interest and principal amount. But before availing of a credit line facility, one must know that interest in credit lines is higher than that of a traditional loan.