Credit line on UPI – Extending the scope of Small Finance Banks (SFBs).

Vide a Press Release: 2024-2025/2136; Mr. Puneet Pancholy, Chief General Manager of the Reserve Bank of India have placed on its website an updated circular on Operation of Pre-Sanctioned Credit Lines at Banks through Unified Payments Interface (UPI).

As announced in the Statement on Developmental and Regulatory Policies dated December 06, 2024, the scope of credit on UPI is further extended to the Small Finance Banks (SFB’s) as well.

[Operation of Pre-Sanctioned Credit Lines at Banks through Unified Payments Interface (UPI) (Updated as on February 12, 2025)] –

These has reference to the Statement on Developmental and Regulatory Policies dated 06^th. April, 2023, and 06^th. December, 2024, expanding the scope of UPI by enabling transfer to and from pre-sanctioned credit lines at banks. Currently, savings account, overdraft account, prepaid wallets and credit cards can be linked to UPI. As announced, the scope of UPI is now being expanded by inclusion of credit lines as a funding account. Under this facility, payments through a pre-sanctioned credit line issued by a Scheduled Commercial Bank to individuals, with prior consent of the individual customer, are enabled for transactions using the UPI System.

Banks may, as per their Board approved policy, stipulate terms and conditions of use of such credit lines. The terms may include, among other items, credit limit, period of credit, rate of interest, etc.

This directive is issued under Section 10(2) read with Section 18 of the Payment and Settlement Systems Act, 2007 (Act 51 of 2007)

[Statement on Developmental and Regulatory Policies] –

This Statement sets out various developmental and regulatory policy measures relating to (i) Financial Markets; (ii) Regulation and Supervision; and (iii) Payment and Settlement Systems.

I. Financial Markets –

• Developing an Onshore Non-deliverable Derivatives Market:

Banks in India which operate International Financial Services Centre (IFSC) Banking Units (IBUs) were permitted to transact in INR Non-deliverable foreign exchange derivative contracts (NDDCs) with non-residents and with each other with effect from June 1, 2020. With a view to develop the onshore INR NDDC and to provide residents with the flexibility to efficiently design their hedging programmes, it has been decided to permit banks with IBUs to offer INR NDDCs to resident users in the onshore market. These banks will have the flexibility of settling their NDDC transactions with non-residents and with each other in foreign currency or in INR while transactions with residents will be mandatorily settled in INR. Related directions are being issued separately.

II. Regulation and Supervision –

• Enhancing Efficiency of Regulatory Processes:

Various entities are required to obtain license / authorisation to carry out activities regulated by RBI. Further, regulated entities are required to seek certain regulatory approvals from RBI under various statutes / regulations periodically. Currently, the application and approval processes for the same take place in varied on-line and off-line modes. The Union Budget for 2023 – 24 has announced the need to simplify, ease and reduce cost of compliance by financial sector regulators within laid down time limits to decide the applications under various regulations.

Therefore, it has been decided to develop a secured web based centralised portal named as ‘PRAVAAH’ (Platform for Regulatory Application, Validation And Authorisation) which will gradually extend to all types of applications made to RBI across all functions.

• Development of Centralised Web portal for Public to Search Unclaimed Deposits:

The deposits remaining unclaimed for 10 years in a bank are transferred to the “Depositor Education and Awareness” (DEA) Fund maintained by the Reserve Bank of India. Depositors’ protection being an overarching objective, RBI has been taking various measures to ensure that newer deposits do not turn unclaimed and existing unclaimed deposits are returned to the rightful owners or beneficiaries after following due procedure. On the second aspect, banks display the list of unclaimed deposits on their website. In order to improve and widen the access of depositors / beneficiaries to such data, RBI has decided to develop a web portal to enable search across multiple banks for possible unclaimed deposits based on user inputs. The search results will be enhanced by use of certain AI tools.

• Grievance Redress Mechanism relating to Credit Information Reporting by Credit Institutions and Credit information provided by Credit Information Companies:

With the increase in customer complaints regarding credit information reporting and the functioning of credit information companies (CICs), it has been decided to put in place a comprehensive framework for strengthening and improving the efficacy of the grievance redress mechanism and customer service provided by the credit institutions (CIs) and CICs. For this purpose, the CICs have been brought under the aegis of the Reserve Bank Integrated Ombudsman Scheme (RB-IOS). In addition, it is also proposed to put in place the following measures: a compensation mechanism for delayed updation/rectification of credit information; a provision for SMS/ email alerts to customers when their credit information is accessed from CICs; a timeframe for ingestion of data received by CICs from Credit Institutions; and disclosures relating to number and nature of customer complaints received on the website of CICs. Detailed guidelines in this regard would be issued shortly.

III. Payment and Settlement Systems –

• Operation of Pre-Sanctioned Credit Lines at Banks through the UPI:

Unified Payments Interface (UPI) is a robust payments platform supporting an array of features. Presently it handles 75% of the retail digital payments volume in India. The UPI system has been leveraged to develop products and features aligned to India’s payments digitisation goals. Recently, RuPay credit cards were permitted to be linked to UPI. At present, UPI transactions are enabled between deposit accounts at banks, sometimes intermediated by pre-paid instruments including wallets. It is now proposed to expand the scope of UPI by enabling transfer to / from pre-sanctioned credit lines at banks, in addition to deposit accounts. In other words, UPI network will facilitate payments financed by credit from banks. This can reduce the cost of such offerings and help in development of unique products for Indian markets.

[Section 10(2) read with Section 18 of the Payment and Settlement Systems Act, 2007 (Act 51 of 2007)]

Act No. 51 OF 2007 provide for the regulation and supervision of payment systems in India and to

designate the Reserve Bank of India as the authority for that purpose and for matters connected therewith or incidental thereto.

Section 10(2) in The Payment And Settlement Systems Act, 2007 empowers the Reserve Bank of India

“Without prejudice to the provisions of sub-section (1), from time to time, may issue such guidelines, as it may consider necessary for the proper and efficient management of the payment systems generally or with reference to any particular payment system”.

Section 18 in The Payment And Settlement Systems Act, 2007: Power of Reserve Bank to give directions generally –

Without prejudice to the provisions of the foregoing, the Reserve Bank may, if it is satisfied that for the purpose of enabling it to regulate the payment systems or in the interest of management or operation of any of the payment systems or in public interest, it is necessary so to do, lay down policies relating to the regulation of payment systems including electronic, non-electronic, domestic and international payment systems affecting domestic transactions and give such directions in writing as it may consider necessary to system providers or the system participants or any other person either generally or to any such agency and in particular, pertaining to the conduct of business relating to payment systems.

Courtesy: Reserve Bank of India

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