The RBI has already allowed banks to present overdrafts to prospects, which they will entry via UPI. The permission now to switch funds from a credit line would allow banks to construction the loans like credit playing cards.
Announcing the transfer, RBI governor Shaktikanta Das stated that the UPI is a strong platform which handles 75% of retail digital funds in India. “RuPay credit cards were permitted to be linked to UPI. At present, UPI transactions are enabled between deposit accounts at banks, sometimes intermediated by prepaid instruments, including wallets. It is now proposed to expand the scope of UPI by enabling transfer to/from pre-sanctioned credit lines at banks,” stated Das.
Bankers stated that the success of the brand new product would rely on whether or not new guidelines enable banks to construction brief-time period loans comparable to a credit card by offering curiosity-free credit for 30 days and reward factors for transactions as these are essentially the most enticing options in credit playing cards for patrons. However, credit playing cards can present these options as they cost a price to the service provider.
UPI’s benefit over credit playing cards is that banks don’t have to join new customers as they will present credit to current prospects. Banks additionally don’t have to incur expenditures in issuing playing cards, signing up retailers or deploying swipe machines.
Private lenders like HDFC Bank, which noticed little worth in pushing UPI transactions, may get extra energetic as they now have a possibility to develop their mortgage books. Experts say that because the UPI is a public infrastructure, the central financial institution is probably going to open up the platform to non-banks to present credit in future.
“Allowing UPI for pre-sanctioned bank credit lines will expand footprint and further encourage innovation,” stated Indian Bank MD & CEO S L Jain. NBFCs say that enterprise growth to the new-to-credit market can occur provided that non-banks take part. They level out that banks are already allowed to present overdrafts utilizing UPI whereas NBFCs’ efforts to present digital credit have confronted restrictions.