New UPI guidelines from August 31: Withdraw credit lines backed by FD, shares, bonds, gold with UPI

The National Payments Corporation of India (NPCI) has issued guidelines on pre-sanctioned credit lines, marking a major development in UPI’s overdraft facility.

Starting from August 31, 2025, users will be able to link pre-approved credit lines backed by fixed deposits (FDs), shares, bonds, and personal or business loan overdrafts to UPI for seamless transactions through platforms like Google Pay, Paytm, PhonePe, and more, the NPCI said in a circular on July 10, 2025.

This means that you will be able to directly access the funds sanctioned by credit lines from financial institutions (backed by FDs, shares, etc.).

NPCI has instructed all UPI member banks, PSPs (payment service providers), credit line issuers and third-party app providers (TPAPs) to implement the necessary changes for the updated rules before August 31, 2025.

What does this mean?

Let’s say you’ve taken a loan for your small business to widen your operations, and you need to pay ₹70,000 to a supplier. Currently, you’d have to make a bank transfer through your business loan account as it can’t be linked to UPI. However, from August 2025, you can make direct UPI payments from the loan account.

At present, UPI allows only person-to-merchant (P2M) transactions with a pre-approved credit line. Once the updates are implemented, as per the circular, cash withdrawals, person-to-person (P2P) and P2PM (Person-to-Merchant for small merchants) transactions will also be allowed using your bank's credit line through UPI.

Newly issued guidelines on UPI credit line

As per NPCI’s guidelines, issuers (like banks) will define terms and conditions for these credit lines and will ensure compliance with regulatory guidelines, bank policy, legal requirements, and the stated reason for which the interest-bearing credit line is being provided.

Further, the issuer (banks and financial institutions) will be in charge of approving and declining the transactions through UPI as per the regulatory guidelines and the defined purpose of the credit line.

This means that the funds in the loan accounts can only be used for the defined purpose, like for business operations in the case of a business loan. Banks that gave the credit line will make the final decision on whether the UPI transaction made from a loan account will be approved or not.

“Issuer shall, as per their board-approved policy, stipulate terms and conditions of use of such credit lines. Issuers shall also approve or decline transactions initiated via UPI as per extant regulatory guidelines, and defined purpose of the credit,” the NPCI circular said..

For example, if a credit line is taken for medical purposes, the bank may allow one to make a transaction for a treatment but may decline it for buying a laptop. This is done to ensure that the credit line is used for the intended purpose and minimise the use of credit in general.

Banks and financial institutions will decide whether to allow any transaction or not. These will vary from bank to bank. This might get complicated for users who have loan accounts with more than one bank due to different policies.

Additionally, now cash withdrawals, P2P transactions and P2PM transactions are also allowed via the credit line.

“In addition to existing MCCs allowed for credit products, these MCCs shall be enabled by UPI Apps, Payer PSPs, Payee PSP’s and Beneficiary Banks for all types of transactions from these account types (Scan & Pay, Pay to Contact/VPA/UPI No., Self-transfer, Account + IFSC based transaction, Intent, etc.),” the circular reads.

These transactions through the credit line can’t go over the daily limits stipulated by NPCI. Currently, the limits are: Users can spend a maximum of ₹1 lakh in 24 hours for both P2P and P2M transactions, and the daily limit on cash withdrawals is ₹10,000. Further, a maximum of 20 P2P transactions are allowed in a day. These limits will also be applicable to the credit line transactions, and might vary from bank to bank as well. It is recommended that users check with their bank regarding the daily limits.

Credit line categories

In the past, only funds in overdraft accounts and RuPay credit cards were accessible through UPI. As per the updated regulations, 9 additional credit line categories can be linked via UPI from August 31, including:

• Credit on FD
• Credit on bond/shares
• Credit on property
• Credit on gold
• Personal Loan
• Business Loan
• Unsecured Credit
• KCC (Kisan Credit Card) loan
• Reserved for future use

The ‘reserved for future use’ category may include any new credit account types that aren’t defined as of now but could be introduced in the future.

Credit line on UPI

A credit line is a credit facility provided by financial institutions in which one can borrow a pre-decided amount, repay it and borrow it again when needed. It is basically a flexible borrowing option that allows individuals to access funds up to a pre-approved limit as and when required.

A pre-sanctioned credit line on UPI allows users to get a pre-approved credit line from their banks or financial institutions, which can then be linked to UPI and used for making transactions directly.

"Under this facility, payments through a pre-sanctioned credit line issued by a Scheduled Commercial Bank to individuals, with the prior consent of the individual customer, are enabled for transactions using the UPI System," the RBI had said.

The central bank added, “Banks may, as per their board-approved policy, stipulate terms and conditions of use of such credit lines. The terms may include, among other items, credit limit, period of credit, rate of interest, etc.”