You can now use your UPI for payments even if your bank account lacks sufficient funds, thanks to the Reserve Bank of India’s recent move allowing transfers from pre-sanctioned credit lines via the UPI network.
Previously, UPI users could only link their savings accounts, overdraft accounts, prepaid wallets, and credit cards to the UPI system. However, the RBI has expanded this capability to allow the utilization of pre-approved credit lines for conducting UPI transactions.
Banks Can Offer Credit Line Facility
As of September 4, 2023, as per the RBI notification, banks can offer a credit line facility to UPI users, enabling them to spend from a pre-sanctioned credit line and settle their dues later. This development empowers individuals to link these credit lines issued by banks to their UPI accounts, facilitating seamless payments.
Pre-sanctioned credit lines involve pre-approved credit granted by banks based on data analytics, assessing the creditworthiness of both existing deposit customers and potentially non-customers.
Some banks refer to this feature as “UPI Now, Pay Later.”
UPI Now, Pay Later
Notably, HDFC Bank and ICICI Bank have already introduced credit lines, namely HDFC UPI Now Pay Later and ICICI PayLater, respectively. These credit lines function as overdraft facilities that account holders can utilize through all UPI-based apps, including Google Pay and MobiKwik.
Both banks have set a maximum credit line of Rs 50,000, depending on the eligibility of the account holders.
HDFC Pay Later Feature
When you activate PayLater on your UPI app, a new account is created with a designated credit line that can be used for UPI transactions. However, it’s important to note that you can only make payments to merchants using this overdraft account under PayLater on UPI, and fund transfers to individuals are restricted. Interest is charged only on the credit limit used and for the number of days it is used, not on the entire amount.
The interest rate is calculated based on the borrowed amount and the number of days it is used. For example, if you use your PayLater account balance of Rs 5,000 for 10 days, you’ll be charged interest on Rs 5,000 for 10 days only. This interest is debited from the PayLater account at the end of the month. If the interest is not paid within three days (grace period), the bank will deduct it from your primary account (Savings/Current). A fee of Rs 199 + GST is charged for the new application.
ICICI Pay Later Feature
In the case of ICICI Bank’s PayLater facility, account holders receive up to 45 days of zero-interest digital credit, which can be used for bill payments, online shopping, and payments to any merchant with a UPI ID. PayLater dues are automatically debited from your ICICI Bank Savings Account. The bank charges a one-time activation fee of Rs 500 plus GST and a service charge of Rs 75 + applicable taxes for every Rs 3,000 of monthly spending from your ICICI Bank PayLater account (applicable on monthly spends of Rs 3,000 & above). Additionally, penal interest based on the daily total outstanding post the ‘Pay by Date’ and fixed late payment charges are levied in subsequently generated bills until dues are cleared.
It’s important to note that PayLater cannot be used for making credit card payments, transferring funds to other bank accounts, or conducting person-to-person fund transfers.