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RBI’s credit on UPI plan can create a win-win situation

May 04, 2023

RBI’s credit on UPI plan can create a win-win situation
India’s financial inclusion will soon add another successful case study. This time, the second iteration of India’s financial inclusion program is poised to connect millions of businesses and billions of individuals to quick-lending services thanks to the Unified Payments Interface (UPI). And the impact of this second iteration would be more impactful than previous banking innovations such as automated teller machines (ATMs), the ubiquitous quick response (QR) code, or the ability to transfer money by simply keying in a ten-digit mobile phone number.

Last month, RBI, during the course of the monetary policy committee announcement on interest rates, said that pre-sanctioned credit line would be made available via UPI. With this, a pre-sanctioned approval acts as a digital credit-card to millions who may not have one. In an age of buy now-pay later, RBI’s recent measure helps create a win-win situation for all – MSMEs, individuals as well as banks.
 
The recent announcement is best explained as an opportunity for a bank or financial institution to extend credit to a UPI-holder. At 85 million as of March 2023, the number of active credit cards in India does seem like a big number. 
 
However, card penetration in India, according to the World Bank, is a mere 5%. Countries such as Canada and Israel have nearly 80% of their population possessing a credit card. Moreover, a credit card sign-up involves a tedious sales process that explains the feeble penetration. Between February and March 2023, India added 2 million credit cards.
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