The National Payments Corporation of India (NPCI), which oversees the immensely popular Unified Payments Interface (UPI), has announced a new set of rules for pre-sanctioned credit lines. These rules, scheduled to take effect from August 31, 2025, are aimed at tightening how these credit lines are used—essentially making sure they’re only used for what they were originally intended.
Key Takeaways:
- New NPCI guidelines for pre-sanctioned credit lines via UPI take effect on August 31, 2025.
- Usage of these credit lines must now strictly follow the original loan purpose.
- Issuing banks will define the terms, and will have the authority to approve or reject transactions based on the sanctioned use.
- All UPI ecosystem players—banks, Payment Service Providers (PSPs), and third-party apps—must comply.
- The aim is to enhance regulatory oversight and ensure more consistent user experiences.
Back in September 2023, NPCI had expanded UPI’s functionality to include pre-sanctioned credit lines as a legitimate funding source. Until then, UPI was mostly tied to savings and overdraft accounts, prepaid wallets, and RuPay credit cards. The expansion allowed consumers to access pre-approved credit through UPI, granted by scheduled commercial banks with user consent. This aligned with the Reserve Bank of India’s (RBI) larger goal of streamlining access to credit and fostering innovation in the financial sector.
Fast-forward to July 10, 2025: NPCI issued a circular that adds another layer of clarity to how these credit lines are supposed to work. At the core of the update is one clear message: any credit extended via UPI must be used strictly for the purpose it was originally approved for. So, if a bank sanctioned a credit line for educational expenses, for instance, you can’t just dip into it for a vacation.
Here’s a breakdown of what the new rules actually mean:
Terms and Conditions: Scheduled commercial banks, which are typically the issuers of these credit lines, must now clearly outline the terms of use. They are also responsible for making sure that the usage complies with regulatory norms, internal bank policies, applicable laws, and—crucially—the original purpose of the loan.
Transaction Approval: Banks will have the power to approve or deny UPI transactions made through these credit lines. The decision will hinge on whether the transaction aligns with the predefined loan purpose and follows existing regulations. It’s a mechanism designed to curtail off-label usage of credit.
Merchant Category Codes (MCCs): Another technical tweak requires all players in the UPI ecosystem—banks, PSPs, sub-members, and app providers—to enable more detailed Merchant Category Codes for interest-bearing transactions. This will help categorize what types of purchases are being made and improve oversight.
The directive, signed by NPCI’s Chief of Products, Kunal Kalawatia, calls for all relevant stakeholders to implement these rules by the August 31 deadline.
For everyday UPI users in India, this is a noteworthy shift. Pre-sanctioned credit lines had added a layer of convenience and speed to digital payments, making funds available on the go. But with that convenience comes the risk of misuse. These new guidelines are NPCI’s way of reining things in—ensuring credit is used responsibly and within its intended scope.
It also reinforces the broader objective of strengthening the security and compliance framework of UPI, which now handles a massive share of India’s digital retail payments. Essentially, it’s a step toward more disciplined credit behavior in an increasingly digital financial ecosystem.
FAQ Section:
Q1: What exactly are pre-sanctioned credit lines on UPI?
A1: These allow users to tap into a pre-approved loan amount directly via UPI for making payments, functioning somewhat like a digital credit line.
Q2: Why are these new rules being introduced?
A2: They’re aimed at ensuring the credit is used strictly for the intended purpose, enhancing transparency and minimizing misuse.
Q3: How will these changes affect me as a UPI user?
A3: If you’re using a pre-sanctioned credit line, your bank will now keep closer tabs on how you use it. Transactions could be declined if they don’t match the loan’s stated purpose.
Q4: Which entities are responsible for implementing these new guidelines?
A4: All members of the UPI network—including banks, PSPs, app providers, and credit issuers—are required to comply.
Q5: When do these new UPI rules come into effect?
A5: The changes kick in on August 31, 2025.
