Unclear guidelines hold back growth of credit line on UPI since launch

Industry sources in the know added that more clarity was required in terms of reporting the use of credit line on UPI to credit bureaus in the country.

Nearly two years after its launch, the credit line on UPI (CLOU) product continues to see limited adoption, as banks and fintech companies remain uncertain about its treatment and reporting requirements, according to multiple industry sources.

 

A key point of confusion is whether the product should be classified and reported as a credit card or a personal loan, each governed by different Reserve Bank of India (RBI) guidelines and compliance obligations.

 

Estimates suggest that the CLOU clocked around ₹500 crore in value per month last year. That figure may have declined this year after a major private sector lender paused the offering, a source said.

 

Industry participants added that further clarity is required on reporting the use of CLOU to credit bureaus in India.

 

Smaller banks, in particular, face technological and operational constraints that limit their ability to underwrite credit lines on UPI, restricting partnerships with fintechs and distribution of the product, a fintech founder said. “Smaller banks specifically still lack understanding of the product. The guideline still hasn’t come on whether to treat it as a credit card… Some large private banks were doing CLOU treating it according to the RBI’s credit card master direction, but there is no circular around it,” the source explained.

 

The National Payments Corporation of India (NPCI), which operates UPI, rolled out the pre-sanctioned credit line on UPI product in 2023. The product links a credit account to the UPI app, allowing banks to disburse credit to users.

 

Industry participants said the offering was aimed at first-time borrowers, gradually introducing them to credit based on their repayment behaviour.

 

Sources added that clear guidelines are still awaited from the RBI and NPCI. They noted that the banking regulator had provided some clarifications to select banks regarding the offering. They, however, underscored that there is no uniform guideline yet on classification and reporting, leaving most lenders hesitant to scale up the product.

 

The RBI and NPCI did not respond to Business Standard’s request for comment until the time of going to press. 

 

“Unless the target segments, the use-case and the product-market fit are clear, banks do not have direction on who should handle this internally and what road map is required to roll it out,” another source said.

 

Another person in the know said NPCI had already issued necessary guidelines to its members, with no plans for separate circulars. The organisation issued a notification in July stating that the end use of the product should align with the purpose of the loan granted by the issuing bank. “There is a clarification that the RBI has given some banks as to how to run the product,” the person added. 

 

Banks, the sources said, however, are notifying the RBI of their plans to roll out the credit line on UPI, including classification and reporting standards, in order to avoid non-compliance.