The Reserve Bank of India (RBI) has announced that customers with pre-approved credit lines from banks will be able to use them for payments through the Unified Payments Interface (UPI) network. This decision will allow customers to use credit products like personal loans, working capital loans, etc. through UPI, subject to current UPI limits.

Impact of the Decision

The recent decision will facilitate payments financed by credit from banks, reducing the cost of such offerings and helping in the development of unique products for the Indian markets. Banks will be able to offer credit products without issuing physical credit cards or requiring expensive physical acceptance infrastructure.

Additionally, this move could include non-customers whose credit bureau and other information has been analyzed by the banks. It will reduce the cost of disbursing and using credit products for both the bank and the customer.

Other card networks can also work with banks to offer credit products that can be linked to UPI, enhancing the convenience and flexibility of financial transactions and paving the way for further growth of UPI. The introduction of pre-sanctioned credit lines is expected to increase transaction volumes and provide a more seamless user experience, thereby boosting the adoption of digital payments across the country.

Pre-Approved Credit Line

A pre-approved credit line is a predetermined amount of credit that a financial institution, such as a bank or credit card company, is willing to extend to a borrower before they actually apply for a loan or credit card. This type of credit line is typically offered to individuals who have a good credit score and credit history, and who meet certain other criteria established by the lender.

Benefits of Pre-Approved Credit Lines on UPI

The decision to allow pre-approved credit lines on UPI will have several benefits:

  1. Cost-Effective: Banks will be able to offer credit products at a lower cost without the need for physical credit cards or expensive physical acceptance infrastructure.
  2. Easy Access: Non-customers whose credit bureau and other information has been analyzed by the banks can also have easy access to credit products.
  3. Convenience: Other card networks can work with banks to offer credit products that can be linked to UPI, enhancing the convenience and flexibility of financial transactions.
  4. Increased Adoption: The introduction of pre-sanctioned credit lines is expected to increase transaction volumes and provide a more seamless user experience, thereby boosting the adoption of digital payments across the country.
Why In News

The Reserve Bank of India (RBI) has given the go-ahead for pre-sanctioned credit lines to be used through the Unified Payments Interface (UPI) network in India. This move is expected to bring a range of benefits for both customers and banks, while also boosting the adoption of digital payments across the country.

MCQs about Pre-Approved Credit Lines on UPI

  1. What is the recent decision by RBI regarding UPI payments?
    A. Pre-sanctioned credit lines through UPI
    B. Physical credit cards for UPI payments
    C. Wallet payments for UPI
    D. None of the above
    Correct Answer: A. Pre-sanctioned credit lines through UPI
    Explanation: RBI has approved pre-sanctioned credit lines through the Unified Payments Interface (UPI) network, allowing customers to use credit products like personal loans, working capital loans, etc. through UPI.
  2. What is a pre-approved credit line?
    A. Credit that a financial institution is willing to extend before a borrower applies for a loan or credit card
    B. Credit that a borrower receives after applying for a loan or credit card
    C. Credit that a borrower receives without any application process
    D. None of the above
    Correct Answer: A. Credit that a financial institution is willing to extend before a borrower applies for a loan or credit card
    Explanation: A pre-approved credit line is a predetermined amount of credit that a financial institution, such as a bank or credit card company, is willing to extend to a borrower before they actually apply for a loan or credit card.
  3. How will the recent RBI decision benefit banks?
    A. They can offer credit products without issuing physical credit cards
    B. They can reduce the cost of disbursing and using credit products
    C. They can include non-customers whose credit bureau and other information has been analyzed
    D. All of the above
    Correct Answer: D. All of the above
    Explanation: The recent RBI decision means that banks would be able to offer credit products without issuing physical credit cards or requiring expensive physical acceptance infrastructure. It will reduce the cost of disbursing and using credit products for both the bank and the customer. Additionally, this move could include non-customers whose credit bureau and other information has been analyzed by the banks.
  4. How is the recent RBI decision expected to impact digital payments in India?
    A. Increase transaction volumes
    B. Provide a more seamless user experience
    C. Boost adoption of digital payments
    D. All of the above
    Correct Answer: D. All of the above
    Explanation: The introduction of pre-sanctioned credit lines is expected to increase transaction volumes and provide a more seamless user experience, thereby boosting the adoption of digital payments across the country.

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