UPI Loan Rules Changing: No Diverting Funds From August 31st

According to the new circular, if a bank has provided a UPI credit line facility to a user for a specific need, then it must only be used to fulfil that need. The new rule will come into effect from 31 August.

The use of pre-approved loan amounts, or credit lines, within the UPI Wallet will now be restricted solely to the purpose for which the bank approved the loan. This new rule will come into effect from 31 August 2025. The National Payments Corporation of India (NPCI) has issued a circular in this regard.

According to the new circular, if a bank has provided a credit line facility on UPI to a user for a specific need, it must only be used to fulfil that need. NPCI has instructed all banks, payment companies, and UPI apps to implement these changes.

The facility to add credit lines on UPI was launched in April 2023, but the control and monitoring mechanisms were weak. It was often observed that customers did not use this loan for the purpose for which it was approved. This was impacting both the banking system and consumer protection. NPCI stated that new rules are being implemented to prevent the misuse of this facility. Many banks are offering credit lines of up to ₹200,000 on UPI.

What are the new rules?

1. Correct Use of Loan: The loan must be used only for the purpose for which the bank approved it. For example, if someone has taken a loan for education, they will not be able to spend it elsewhere using UPI.





2. Crucial Role of Banks: The bank will decide which transactions are approved and which are not. This decision will be made by the bank keeping in mind its policy and the purpose of the loan.





3. Monitoring of all Transactions: If a customer uses the credit line for an incorrect purpose, the bank will be able to block it. This mechanism is considered the biggest advantage of this new system.





4. Changes in Apps: All banks, UPI payment service providers, and app companies will have to add new codes to facilitate the use of interest-bearing credit lines.

What is the Credit Line Facility?

Previously, only savings accounts, wallets, or RuPay credit cards could be linked via UPI, but later the credit line facility was also added. This is a type of loan that is pre-approved by banks for their customers. Similar to a credit card, a certain amount is set for the customer to spend. However, instead of receiving the entire loan amount, the customer can use the money little by little via UPI as needed. If the user does not have funds in their savings account or UPI wallet, they can use this loan amount for payments as needed. Interest is charged by the bank not on the entire loan amount, but only on the amount spent.

How to Link a Credit Line Account?

• Banks provide the credit line facility only to customers with a good credit score.
• First, download the UPI app from the Play Store. Complete the registration process and select the credit line as an option.
• Select your issuer bank's name from the drop-down menu. Once the mobile number is updated with the issuer bank, the masked (masked: credit line) will appear on the screen.
• Select the credit line account you wish to link and confirm. Then generate the UPI PIN.
• The loan repayment terms depend on the issuing bank.