NPCI Issues New Guidelines for Linking Pre-Sanctioned Credit Lines on UPI

From August 31, users can leverage credit lines linked to fixed deposits, shares, and overdraft loans for UPI transactions

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New Delhi: In a major step to enhance digital payment flexibility, the National Payments Corporation of India (NPCI) has introduced new guidelines for using pre-sanctioned credit lines on the Unified Payments Interface (UPI). Starting August 31, 2025, customers will be able to link credit lines backed by various financial instruments—such as fixed deposits, shares, bonds, and overdraft loans—to their UPI apps.

NPCI Issues New Guidelines for Linking Pre-Sanctioned Credit Lines on UPI

This move is set to transform UPI transactions, providing users with greater access to credit-based payments on popular platforms such as Google Pay, PhonePe, Paytm, and others. With the integration of pre-approved credit lines, UPI will transition from being a primarily savings-linked payment system to a more comprehensive digital payment ecosystem that seamlessly combines debit, credit, and peer-to-peer transfers.

What Changes Under the New Guidelines?

At present, the use of credit lines on UPI is restricted to person-to-merchant (P2M) payments, meaning users can only pay registered merchants. However, under the new guidelines, users will be able to:

Withdraw cash from ATMs or banking agents via UPI using the pre-approved credit line.
Send money to other individuals (P2P payments) directly through UPI apps.
Pay small merchants or unregistered businesses without needing to link their account to a debit card or bank account balance.

This enhancement effectively elevates UPI into a hybrid payments platform, enabling both debit-based and credit-based transactions seamlessly.

Impact on Users and the Financial Ecosystem

For customers, this means a simplified and more flexible payment experience. Instead of relying on bank account balances or debit cards, users will now have the option to draw from a pre-approved credit line at the point of transaction. This credit line can be linked to:

Fixed deposits (FDs), which can serve as collateral.
Shares or bonds, where the credit limit can be set based on portfolio value.
Overdraft facilities, where banks provide a predetermined credit limit for instant use.

By bringing these instruments into the UPI framework, the NPCI aims to broaden the scope of digital payments and boost financial inclusion, especially for customers who may not have sufficient bank balances but hold assets or approved credit facilities.

Boost for Merchants and Digital Economy

For merchants—especially **small vendors, local stores, and informal businesses—**this initiative means increased acceptance of credit-driven UPI payments. It eliminates the need for physical POS (point-of-sale) infrastructure, since even credit-linked payments can now be executed via QR codes or UPI IDs.

Additionally, by enabling P2P transfers from credit lines, the system provides a more flexible alternative to traditional credit cards. Instead of card swipes, customers will be able to use credit-linked UPI for any transfer, bill payment, or even splitting expenses.

NPCI’s Vision for UPI 3.0 and Beyond

The NPCI has been consistently evolving the UPI framework to enhance user convenience and expand its scope. With UPI 2.0 introducing features like overdraft account linking and recurring payments, the integration of pre-approved credit lines is seen as a significant leap towards UPI 3.0.

Key objectives of this move include:

Promoting digital credit adoption among retail users.
Expanding UPI beyond bank account-based payments.
Encouraging banks to innovate new credit products tied directly to UPI.
Reducing dependency on physical credit cards and debit cards.

Industry and Banking Sector Response

Banks and fintech companies are expected to welcome this move, as it allows them to offer new, asset-backed credit products directly via UPI platforms. Several fintech lenders and digital-first banks may soon roll out micro-credit lines and FD-backed credit accounts accessible instantly on UPI apps.

According to payment industry experts, the integration of credit lines on UPI could significantly increase transaction volumes, especially in rural and semi-urban areas, where credit card penetration remains low but smartphone-based UPI adoption is high.

Future Prospects

With UPI already processing over 12 billion transactions monthly (as per the latest data), this new feature could unlock a new wave of digital credit adoption in India. The “Buy Now, Pay Later (BNPL)” concept could be seamlessly integrated into UPI apps through these credit lines, allowing users to access instant credit for everyday expenses.

Moreover, this move aligns with RBI’s larger vision of a cashless and credit-accessible economy, where customers can rely on secure, digital-first payment systems for all types of financial needs.

Conclusion

The NPCI’s guidelines for pre-sanctioned credit lines on UPI mark a new milestone in India’s digital payment journey. By enabling credit-linked UPI transactions beyond just merchant payments—covering P2P transfers, small merchant payments, and cash withdrawals—NPCI is positioning UPI as India’s universal payments and credit platform.

As this system rolls out from August 31, 2025, users can expect greater convenience, increased financial flexibility, and enhanced digital credit adoption, which could further cement UPI’s status as the world’s most advanced real-time payment platform.