The UPI (Unified Payments Interface) has been instrumental in pushing India towards a digital economy. After the success of RuPay credit cards, the Reserve Bank of India (RBI) has now proposed to expand the scope of UPI by introducing pre-sanctioned credit lines.
This move is expected to enable more innovation through UPI and provide timely credit to the last mile. This article will explain how pre-sanctioned credit lines on UPI work, the benefits they offer, and their expected impact on the Indian banking industry.
What are pre-sanctioned credit lines?
Pre-sanctioned credit lines are a type of facility offered by banks to their customers that enables them to borrow a predetermined amount of money without having to apply for a loan. It is similar to a credit card, but it is more flexible and revolving in nature. The banks offering pre-sanctioned credit lines will complete basic verification of the personal accounts to determine the pre-sanctioned credit limit that can be availed.
The main advantage of such credit lines is that they offer faster processing of the application as compared to traditional loans. However, the interest rates on the credit line might be on the higher side.
How does a credit line through UPI work?
To avail of pre-sanctioned credit lines through UPI, the users will have to make a formal application to the lender or the bank, similar to availing a traditional loan from the lender. After the application, the financial records of the applicant will be thoroughly verified by the lender to determine the amount of credit line that can be granted.
The verification process includes checking the applicant's credit score, income history, borrowing history, repayment history, etc. Once the application is approved, users will be granted the pre-sanctioned credit line based on their personal financial details. The users can then access and use this credit line for their UPI financial transactions.
What are the benefits of pre-sanctioned credit lines on UPI?
The main benefit of pre-sanctioned credit lines on UPI is that it will enable customers to make payments without having to carry multiple credit cards. This will also revitalise the digital lending space and the BNPL format which still has a long way to go in the Indian markets.
In addition, this move will also help in achieving financial inclusion at the grassroots level. It will make it easier for the unbanked population to access credit and expand their financial horizons.
In addition, the introduction of pre-sanctioned credit lines on UPI is expected to have a huge impact on the banking industry. It will open up new avenues of growth for banks and other financial institutions. It is also expected to benefit the unbanked population as they will be able to access credit easily. This will in turn help in increasing financial literacy and promote financial inclusion.
Commenting on the same, Dilip Modi, Founder of Spice Money said," 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."
The introduction of pre-sanctioned credit lines on UPI is a major step towards making India a digitally empowered country. It will provide an easy and accessible platform for the unbanked population to access credit and thus will boost innovation in the banking industry.