“Once this is introduced, many more will be able to use credit card-like features where the interest rate clock does not start ticking from the moment the credit is used,” said one of the people cited above.
Credit on the real-time payments system, first announced by then Reserve Bank of India (RBI) governor Shaktikanta Das in April 2023, was formally rolled out at an industry event in September 2023 to widen access to credit and lower costs for both lenders and borrowers.
India’s retail payments body is in talks with lenders to roll out credit lines as low as ₹5,000 on the Unified Payments Interface (UPI), banking on credit card-like interest-free periods and regulatory clarity to boost uptake, according to two people close to the development.
“Once this is introduced, many more will be able to use credit card-like features where the interest rate clock does not start ticking from the moment the credit is used,” said one of the people cited above.
Credit on the real-time payments system, first announced by then Reserve Bank of India (RBI) governor Shaktikanta Das in April 2023, was formally rolled out at an industry event in September 2023 to widen access to credit and lower costs for both lenders and borrowers.
Despite steady growth, credit cards have yet to meaningfully penetrate the world’s fourth-largest nation, with just 114 million cards for a population of 1.4 billion.
Regulators are therefore hopeful that UPI-linked credit lines can help bridge this gap, especially for self-employed borrowers and those without a stable or sizable income, who often struggle to qualify for traditional credit cards.
However, adoption has been limited—with only a handful of banks opting to offer loans through the platform so far—primarily because of two reasons.
First, there was little clarity on the RBI’s expectations for the product. According to the first person, the central bank’s two departments were not in sync on the credit facility. While the payments and settlement department launched the option, the regulation department worried that this hadn’t been tested enough to be allowed in the market.
“That has been internally resolved now, and both departments are now on board, which means you will see a push from the regulator,” said the first person, on condition of anonymity.
Second, the credit lines lacked a crucial feature—an interest-free period that allows customers to use the facility without paying interest if they repay within the due date, similar to a credit card.
In December, private lender Yes Bank partnered with fintech firm BharatPe to launch a credit line with up to 45 days of interest-free period, while Suryoday Small Finance Bank started offering 30 days of interest-free credit with Paytm in September.
“More banks will introduce interest-free periods on credit lines in the next three months. The plan is to offer small credit lines around ₹5,000 or so,” said the second person, on the condition of anonymity.
While about 491 million individuals and 65 million merchants use UPI, public data on the UPI credit line is not yet available.
The Economic Times reported on 18 November, citing industry estimates, that around 300,000 to 400,000 customers had availed themselves of the facility.
Mint‘s emailed queries to the RBI and to the National Payments Corporation of India (NPCI) remained unanswered.
Once burned, twice shy
Meanwhile, according to experts, banks’ cautious approach to UPI-linked credit lines is partly shaped by their mixed experience with similar products, such as buy-now-pay-later (BNPL). Some institutions saw elevated delinquency and loss rates on these offerings, making lenders wary of scaling up another unsecured, short-term credit product.
“The potential for credit on UPI is widely recognized, particularly for unserved markets that remain outside the reach of traditional credit cards. However, adoption has been gradual due to a wide range of reasons,” said Ranadurjay Talukdar, partner and payments sector leader at consulting major EY India.
For large banks, Talukdar said, concerns about overlap with existing card portfolios have also played a role, limiting the extent to which such products have been actively promoted.
“As a result, many banks have taken a cautious approach to extending credit lines on UPI, and until these regulatory, technology and economic factors are addressed, large-scale adoption of credit on UPI is likely to remain measured rather than a runaway success,” he said.
Bankers also believe the merchant ecosystem needs to be sensitized to encourage wider adoption of the facility. While interest-bearing credit lines do not attract a merchant discount rate (MDR), interest-free lines do, with an MDR of 1.2%. MDR is the fee paid by merchants to banks, card networks and point-of-sale providers for offline transactions, and to payment gateways for online purchases.
“Both models—those with an interest-free period and those without—have been available, and banks are now experimenting with the former. It will take time to gain traction and can only scale once merchants agree to accept these payments,” said an executive at a bank offering credit lines on UPI, on the condition of anonymity.
Mihir Gandhi, partner and leader for payments transformation at professional services firm PwC India, also said that banks remain wary of UPI credit lines despite regulatory encouragement, having “burnt their fingers” with BNPL products and even credit cards during the Covid-19 pandemic.
“Lenders have tightened risk filters for credit cards and now prefer customers with deeper relationships, such as deposits, loans or investments. Banks are no longer keen on standalone credit card customers, particularly for feature-rich, top-end cards,” Gandhi said.
While some industry participants compare UPI credit lines to BNPL products, others argue the two are not directly comparable.
“It is a bank-originated, pre-sanctioned credit line, usable across the broader UPI merchant ecosystem and not tied to specific merchants. It operates with standard disclosures, repayment obligations, and regulatory oversight,” said Priyanka Kanwar, chief executive and co-founder of Falcon, a fintech that provides UPI credit-line solutions to banks.
Kanwar added that some issuers are introducing interest-free periods to align with consumer expectations shaped by credit cards. “These features are configurable at the issuer level and must be disclosed in line with the RBI’s master directions on credit and debit cards, depending on how the credit line is structured and classified.”