The Reserve Bank of India's decision to allow pre-sanctioned credit lines from banks to be linked to UPI — first piloted in 2023 — has seen meaningful adoption in 2025 and 2026. This feature allows bank customers with a pre-approved credit facility to make UPI payments that draw from the credit line rather than their bank balance. The interest kicks in only on the drawn amount, similar to a credit card but with UPI's ubiquity.
How UPI credit lines work
1. Your bank assesses your creditworthiness and sanctions a credit line (say ₹1 lakh) 2. You link this credit line to your UPI app (BHIM, PhonePe, GPay, etc.) 3. When making a payment, you choose "Pay from credit line" instead of your savings account 4. Interest accrues only on the amount used, from the day of use 5. You repay within the credit period (typically 30-45 days interest-free, then interest applies)
How this differs from a credit card
- Wider acceptance: UPI is accepted at 5 crore+ merchants vs. card acceptance at ~80 lakh terminals
- No physical card: Works on any UPI-enabled device
- Potentially lower interest: Banks can price credit lines more competitively than card issuers
- No reward points (typically): Most banks have not yet built reward programs for credit line UPI transactions
Credit implications
Usage of UPI credit lines is reported to credit bureaus (CIBIL, Experian). This creates a credit history for thin-file customers — people who never had a credit card or loan — which can improve their credit score over time with responsible usage.
Conversely, missed repayments will hurt your score just as much as a missed credit card payment.
Who should use it
UPI credit lines make sense for: - Customers who want UPI convenience with deferred payment - Self-employed individuals who have irregular cash flows but a strong banking relationship - First-time credit users building a credit history
Avoid using it as a short-term loan replacement — the interest rates (typically 18-36% annualised after the interest-free period) are not competitive with personal loans for planned borrowing.