GS Paper III

News Excerpt:

RBI enhances UPI payment limits and proposes rules for web-aggregation of loans and the creation of  a Fintech Repository.

About the news:

• The Reserve Bank of India (RBI) has made important changes to digital payments and lending. It increased the UPI payment limits to pay up to Rs. 5 lakh from Rs 1 lakh for healthcare and education.
• The enhanced limit will help consumers make UPI payments of higher amounts, especially for both education and healthcare purposes.
• To ensure fairness in online loans, the RBI has also proposed rules for companies that gather loan offers from different lenders (called web-aggregation of loan products).
•  It also proposed creating a Fintech Repository to better understand and control the partnerships between banks, finance companies, and FinTech firms.
•  It will be run by the RBI’s Innovation Hub. The rationale behind this framework is to better understand developments in the fintech ecosystem as financial entities such as banks and NBFCs are increasingly partnering with them.
• This move is expected to bring more clarity and trust to the digital lending sector, making it safer for people to use online financial services.

Unified Payments Interface (UPI):

•  Unified Payments Interface (UPI) is an instant payment system developed by the National Payments Corporation of India (NPCI), an RBI-regulated entity.
•  It is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood.
•  It also caters to the “Peer to Peer” collect request which can be scheduled and paid as per requirement and convenience.
• With the above context, NPCI conducted a pilot launch with 21 member banks. The pilot system was launched in 2016 by the then RBI Governor in Mumbai.

Features of UPI:

Progress made by UPI in India

•  Launch and Growth: Since its launch in 2016, UPI has rapidly gained popularity and currently boasts of around 260 million users.
• Growth forecast: The UPI's future growth looks promising. UPI, comprising 75 % of India's digital transactions, is expected to grow four-fold by 2026.
•  Ecosystem Expansion: Introduced in the wake of demonetization in 2016, and further pushed by COVID-19 three years later, UPI has evolved into a key platform for financial services beyond payments.
•  Global Expansion: The domestic success of UPI is paving the way for its global expansion. India is the world’s leading remittance market in terms of inflows. It has signed agreements with more than two dozen countries to expand UPI beyond its borders.
•  Opportunities for the fintech sector: UPI's growing global footprint is also a sign of greater opportunities for the Indian fintech sector, which attracted funding worth $4.8 billion in 2022 and is expected to be a $2 trillion industry by 2030.

Prelims PYQ

Q. Which of the following is a most likely consequence of implementing the 'Unified Payments Interface (UPI)'? (UPSC 2017)

(a) Mobile wallets will not be necessary for online payments.

(b) Digital currency will totally replace the physical currency in about two decades.

(c) FDI inflows will drastically increase.

(d) Direct transfer of subsidies to poor people will become very effective.