NPCI’s Credit Line on UPI (Clou)

The National Payments Corporation of India (NPCI) launched Credit Line on UPI (Clou) in 2023 to make credit as frictionless as digital payments, enabling users to access a pre-approved credit line directly through their UPI app.

Nearly two years since its launch, adoption remains limited due to regulatory uncertainty, uneven technological readiness, and low borrower awareness.

Key Features of Clou

• Provides pre-approved credit through the UPI interface.
• Targets underserved and new-to-credit segments.
• Designed to leverage digital payment footprints for credit assessment.

Lessons from UPI’s Impact on Credit

• Research by the National Bureau of Economic Research (Shashwat Alok et al.) shows:
  • Between 2015–2019, fintech loans in subprime/new-to-credit segments increased tenfold.
  • A 1% increase in UPI transactions was associated with a 0.73% increase in credit.
  • UPI-enabled digital footprints did not increase defaults, helping lenders identify creditworthy but underserved borrowers.
• Key enablers included low-cost internet and Jan Dhan Yojana accounts, which strengthened digital credit growth.

Challenges for Clou

• Regulatory ambiguity:
  • Unclear classification of Clou loans (personal vs credit card loans).
• Technological gaps:
  • Small lenders lack real-time integration with UPI systems.
• Limited borrower awareness:
  • Many potential users are unaware of Clou or how to access it.

Policy Recommendations

• Unified operational guidelines by RBI and NPCI for loan classification and reporting.
• Standardised data-sharing and consent framework to build trust between lenders and borrowers.
• Support for smaller banks through shared cloud infrastructure or fintech partnerships.
• Open, interoperable, and affordable digital platforms to expand credit access at scale.