The Reserve Bank of India (RBI) has allowed pre-sanctioned credit lines to be used for UPI transactions.

This announcement is a result of the proposal made in April this year that focused on the scope of UPI to be expanded by transfer from credit lines at banks.

Earlier, only the amount deposited in the account could be used for UPI transactions. After this announcement, credit lines can be used for transactions involving UPI.

At present, one can link savings accounts, overdraft accounts, prepaid wallets, and credit cards with UPI. But from now onwards, credit line as a funding account can also be used for UPI transactions.

In a circular on ‘Operation of Pre-Sanctioned Credit Lines at Banks through UPI,’ the RBI said that the inclusion of credit lines as a funding account will expand the penetration of UPI.

The RBI also said, “Under this facility, payments through a pre-sanctioned credit line issued by a Scheduled Commercial Bank to individuals, with the prior consent of the individual customer, are enabled for transactions using the UPI System”

The release further added, “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 move will not just help banks but also business owners and customers who are in need of instant payments.

Enabling UPI transactions with pre-sanctioned credit cards will help reduce the cost of such offerings, allowing unique product development for the Indian market.

With a wide range of features, UPI is currently handling 75% of the retail digital payments volume in India. Its system has been designed to develop features that are aligned with the country’s digitization goals.

Currently, UPI transactions are possible between deposit accounts at banks, occasionally intermediated by pre-paid instruments including wallets.

In August alone, the UPI transactions crossed the 10 billion mark, followed by 9.96 billion in July and 9.33 billion in June.