RBI proposes higher UPI limit for IPOs. Find out more

While the Reserve Bank of India may have kept the benchmark lending rates unchanged in its latest bi-monthly policy, its apex body has recommended a key change that could increase retail participation in the country’s booming initial public offering (IPO) market. 

The RBI has recommended that the transaction limit for applying for IPOs via the Unified Payments Interface (UPI) route be raised from Rs 2 lakh at present to Rs 5 lakh. 

What has the RBI actually said on this proposed change?

The RBI said that since 2019, UPI has become a popular method used by retail investors to apply for IPOs. “It is reported that IPO applications of Rs 2 (lakh) to Rs 5 lakh constitute approximately 10% of subscription applications,” the RBI said.

“To further encourage the use of UPI by retail investors, it is proposed to enhance the transaction limit for payments through UPI for Retail Direct Scheme and IPO applications from Rs 2 lakh to Rs 5 lakh,” the central bank added.

But why is it important for the RBI to encourage retail participation via the UPI route?

The RBI says that UPI is the single-largest retail payment system in the country in terms of volume of transactions. This makes it an important tool to enable retail participation in the capital markets. 

In fact, the central bank has also proposed to offer a simpler process flow by enabling small value transactions through an “On-device” wallet in the UPI app which will conserve banks’ system resources, without any change in the transaction experience for the user.

By when are these changes likely to be enforced?

 

For now, this is just a recommendation and there is no clarity by when these proposals will be implemented.

The central bank did not specify the day from which it will be applicable and added that a separate instruction to National Payments Corporation of India, which manages the UPI, will be issued shortly.

What other efforts has the RBI made to make life easier for retail investors and facilitate their participation?

The central bank has been making efforts to facilitate greater participation of retail customers in financial markets. It recently allowed investment in the G-Secs segment by launching the Retail Direct Scheme, where UPI, in addition to other options such as internet banking, can be used to make payments.

Besides the changes in IPO investment, the central bank also proposed to launch UPI-based payment products for feature-phone users and make the process flow for small value transactions simpler through a mechanism of ‘on-device’ wallet in UPI applications.