Non-banking financial companies (NBFCs) and fintechs have approached the Reserve Bank of India to allow such entities to offer credit on UPI, either through credit cards or pre-approved credit lines, both of which are currently reserved for banks.

While discussions among industry players and associations have been going on for a while, representations have now been made to the regulator to permit NBFCs to offer credit via the UPI payments platform.

“We are hopeful that something like that will be permitted, with NBFCs being allowed to find a way to offer credit on UPI in some form or factor, whatever it may be. Because UPI is the most powerful transmission tool we have in this country,” a source told businessline.

Currently, the central bank allows UPI payments to be made via credit cards only on the homegrown RuPay network. Further, it has also permitted banks to offer pre-approved credit lines to UPI customers, which allows them to make payments on credit.

“Most digital lenders (fintech and NBFCs) are looking at credit on UPI; it is important because of its multiplier effect. But credit on UPI is not going to be a meaningful game changer for the ecosystem until non-banks are allowed to participate,” an industry official said on the condition of anonymity.

Customer protection

The regulator’s apprehension seems to stem from a customer protection standpoint, where it wants to make sure ‘credit on UPI’ works as a product offering before they extend it to more players. Given that the RBI has traditionally followed an “incremental policy change” approach, some NBFCs are hopeful that the current restrictions are not permanent, and once the central bank has explored the finer aspects and external factors, they will be more conducive to extending the facility to non-banks.

However, other industry participants argued that volumes have been minimal so far, as it is difficult for ecosystem players to efficiently utilise this channel of distribution. These volumes are then unlikely to pick up till private lenders, fintechs, and other card networks are included in the fold.

“Private players are usually the drivers of small credit. Allowing NBFCs will also allow for more partnerships and co-lending. The government is very good at setting up the guardrails and better management practices and regulations, but business is driven by the private sector, so non-banks and fintechs should be allowed,” said a senior industry official.