The RBI has proposed a plan to allow banks to offer pre-sanctioned credit lines to customers via UPI. This will expand the reach of the Unified Payment Interface. Following the Monetary Policy Committee meeting, the Reserve Bank of India announced this decision in the ‘Statement on Developmental and Regulatory Policies.’ With this new move, customers can use credit through UPI, similar to how they use credit cards. This will enable customers to utilize a pre-sanctioned credit line, even if their account balance is insufficient.
Previously, a customer could only transfer the available balance in their account through UPI to other banks or wallets. The RBI limited pre-sanctioned credit lines through UPI to the amount available in the customer’s account. However, the Reserve Bank of India’s recent announcement allows banks to provide pre-sanctioned credit lines to their customers via UPI. With the new proposal, if a bank has already pre-sanctioned a credit line of INR 1 Lakh to a customer, they can also use it through UPI.
Impact on the Banking and Fintech Industry
The RBI’s decision to permit banks to provide pre-sanctioned credit lines through UPI represents progress in the formal credit economy. The Reserve Bank of India has stated that this initiative will reduce the cost of such credit offerings. Also, it will foster the creation of distinctive products for the Indian market. RBI Governor Shaktikanta Das also added that this initiative would promote innovation. Experts expect that the RBI will provide specific recommendations on this subject.
This progress follows almost a year after the RBI prohibited entities without a banking license from loading prepaid payment instruments (PPIs) with credit lines. Thus, disrupting the business models of several startups, including unicorns like Slice, Jupiter, and Fi. In August 2022, the digital lending guidelines established a clear foundation for Indian lending tech startups. Industry insiders suggest that the Reserve Bank of India’s most recent announcement will encourage innovation among Indian fintech.
After the RBI decided to ban such entities, many BNPL players had to find ways to maintain a seamless customer experience. With the latest announcement from the RBI, a fintech that currently works with banks as technology service providers or for issuing co-branded credit cards may explore co-lending opportunities, which could provide an additional source of revenue for struggling fintech in the Indian startup ecosystem.
The BFSI community views the Reserve Bank of India’s decision as a welcome step. However, stakeholders in the fintech industry declined to comment. They noted the lack of specific standards.
Harish Prasad, Head of Banking in India at FIS, believes the RBI’s decision to permit pre-sanctioned credit lines through UPI could significantly revitalize the digital lending and BNPL industry. This step could open up new avenues for credit utilization across a larger merchant base.
RBI’s Further Plans
During the Monetary Policy Committee meeting, the RBI discussed its plans to create a centralised web portal for users. The portal will serve as a platform to search for unclaimed deposits. The portal aims to help the public search for deposits that have been unclaimed for ten years or more. Typically, unclaimed deposits are transferred to the “Depositor Education and Awareness” (DEA) Fund managed by the RBI. The Reserve Bank of India hopes to prevent newer deposits from becoming unclaimed with the new portal. Thus, ensuring that existing unclaimed deposits are returned to their rightful owners or beneficiaries through a proper procedure.
Additionally, RBI will focus on AI to improve and widen access to depositors’ data. This development aligns with Finance Minister Nirmala Sitharaman’s call for banks to deploy AI, data analysis, and Web3 tools to detect fraud and provide early warning signals. Finally, she suggested that Web3 and AI could be leveraged to detect fraud and unusual bank transactions.
Several banks and NBFCs use AI and deeptech to enhance user experience and security. Mumbai-based fintech startup Kiya.ai, for instance, introduced a Metaverse-based banking experience in 2022.
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