HDFC, Axis, Kotak Bank to offer new credit facility to UPI users: Know details

Kolkata: UPI has so long meant extreme comfort, convenience and speed of transactions. Now it is also paving the way for quick small loans. Major private sector banks such as HDFC Bank, Axis Bank, and Kotak Mahindra Bank are now preparing to rapidly expand credit payments through UPI. It will basically offer an UPI user to make payments for everyday expenditure through UPI on credit and without a (credit) card.

The most significant point is that though NCPI (National Payments Corporation of India) introduced the feature in 2023, major banks are warming up to the feature right now. Only two smaller banks -- Karnataka Bank and Suryoday Small Finance Bank -- launched this facility. They offered it in association with Navi and Paytm respectively. A crucial step in this process is to ensure a first-level verification through the app and fintech startups such as Navi, Super.Money and SalarySe are ensuring this step enabling the bigger banks to step in.

Industry estimates point out that a maximum of about 4 lakh UPI users have already started using this feature of UPI-based credit lines. Therefore, the frequency of such transactions is miniscule compared to usual UPI payments (from one's own savings bank account). But the pace could rapidly grow once the bigger banks start offering the feature, who view it as a possible way of inducting new customers with the lure of small loans. With the credit option on UPI, banks could potentially reach millions of users who make small everyday expenses through UPI and could become a major client base of banks.

The UPI-based creditline could open up a floodgate of small loans. One area of concern for banks is to determine how interest would be charged on this type of credit. Also whether there would be an interest-free period like credit cards. These concerns were among those that were holding back the bigger banks. Reports indiocate that finally these matters have been resolved and clarity obtained with the assistance of the Reserve Bank and NCPI. Therefore, banks are now moving forward with the launch of this facility.

Some banks are also concerned with possible outcome of a large number of small loans. If customers fail to repay on time, recovery will not be easy since the loans will be small and numerous. These imponderables are holding back banks from jumping into the new service.