In a move aimed at increasing the accessibility of credit for Indian consumers, the Reserve Bank of India (RBI) has allowed banks to offer pre-approved credit via the Unified Payments Interface (UPI). This announcement comes as part of the RBI’s ongoing efforts to modernize the country’s banking sector and promote financial inclusion.
The UPI is a payments system developed by the National Payments Corporation of India (NPCI) that enables instant transfers between bank accounts using mobile phones. The platform has gained significant popularity in recent years, with over 2.3 billion transactions processed in March 2021 alone, according to NPCI data.
Under the new guidelines, banks can now offer pre-approved credit to customers through the UPI channel, provided they have a pre-existing relationship with the customer and the credit amount does not exceed the customer’s pre-approved limit. This means that customers will be able to access credit instantly through the UPI app without having to go through a lengthy application process.
“The move to allow pre-approved credit on UPI is a significant step towards making credit more accessible and inclusive for the Indian consumer,” said Amitabh Kant, CEO of NITI Aayog, a policy think-tank under the Indian government.
He added that the new guidelines would help reduce the time and effort required for customers to access credit, while also giving banks a new avenue to offer credit products to their customers.
The RBI has also outlined a number of safeguards to protect customers from potential misuse of the pre-approved credit facility. For instance, banks are required to conduct a thorough risk assessment of each customer before offering pre-approved credit, and must ensure that the credit amount does not exceed the customer’s pre-approved limit.
Additionally, banks must provide customers with clear information on the terms and conditions of the credit facility, including interest rates, fees, and repayment terms. They are also required to provide customers with a grace period of at least three days before initiating any recovery proceedings in the event of a missed payment.
The RBI’s move has been welcomed by the banking industry, which sees it as a positive step towards promoting digital lending in the country. “The pre-approved credit facility on UPI will help in expanding the scope of digital lending and make it more convenient for customers to access credit,” said Rajeev Yadav, CEO of Fincare Small Finance Bank.
He added that the new guidelines would also help address the issue of low credit penetration in the country, which has been a major challenge for the banking industry.
According to a report by the World Bank, only 15% of the Indian population aged 15 and above have access to credit from formal financial institutions, compared to a global average of 33%. The report also noted that India has one of the lowest rates of credit bureau coverage in the world, with only 22% of adults covered by a credit bureau.
Experts believe that the RBI’s move to allow pre-approved credit on UPI could help address some of these challenges by making credit more accessible to a wider range of customers, including those who may not have a formal credit history.
“The pre-approved credit facility on UPI has the potential to be a game-changer for the Indian banking industry,” said Ravi Menon, CEO of HSBC India. “By leveraging the power of digital technology, banks can now offer credit to customers in a more efficient and convenient manner, while also mitigating the risks associated with lending.”
He added that the new guidelines would help banks better understand their customers’ credit needs and behavior, enabling them to offer more tailored credit products and services. The RBI’s move to allow pre-approved credit on UPI comes at a time when digital payments and lending are gaining traction in India.
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