The RBI has already allowed banks to offer overdrafts to shoppers, which they may be able to get admission to via UPI. The permission now to switch budget from a credits line would allow banks to construction the loans like bank cards.
Announcing the transfer, RBI governor Shaktikanta Das mentioned that the UPI is a strong platform which handles 75% of retail virtual bills in India. ,Rupay Credit playing cards had been authorized to be related to UPI. At provide, UPI transactions are enabled between deposit accounts at banks, now and again mediated via pay as you go tools, together with wallets. It is now proposed to increase the scope of UPI via enabling switch to/from pre-sanctioned credits strains at banks,” said Das.
Bankers said that the success of the new product would depend on whether new rules allow banks to structure short-term loans similar to a credit card by providing interest-free credit for 30 days and reward points for transactions as these are the most attractive features in credit cards for customers. However, credit cards can provide these features as they charge a fee to the merchant.
UPI’s advantage over credit cards is that banks do not have to sign up new users as they can provide credit to existing customers. Banks also do not have to incur expenditures in issuing cards, signing up merchants or deploying swipe machines.
Private lenders like HDFC Bank, which saw little value in pushing UPI transactions, could get more active as they now have an opportunity to grow their loan books. Experts say that since the UPI is a public infrastructure, the central bank is likely to open up the platform to non-banks to provide credit in future.
“Allowing UPI for pre-sanctioned financial institution credits strains will increase footprint and extra inspire innovation,” mentioned Indian Bank MD & CEO SL Jain. NBFCs say that industry growth to the new-to-credit marketplace can occur provided that non-banks take part. They indicate that banks are already allowed to do overdrafts the usage of UPI whilst NBFCs’ efforts to offer virtual credits have confronted restrictions.