Unified Payments Interface (UPI) Block Mechanism: Meaning and Working
Introduction
The Unified Payments Interface (UPI) is an instant payment system developed by the National Payments Corporation of India (NPCI). It enables users to transfer money between bank accounts through mobile applications. UPI also supports mechanisms that allow funds to be blocked for specific purposes without immediately transferring ownership of the money.
What is the UPI block mechanism?
In a UPI block or mandate-based arrangement, a specified amount may be earmarked in a bank account for a particular transaction. The amount remains in the account but is unavailable for other uses to the extent that it has been blocked.
A key example is UPI ASBA-like functionality, including the use of UPI mandates in eligible public issues, such as certain IPO applications.
How it works
An investor submits an application and authorises a UPI mandate.
The investor's bank places a hold on the specified amount.
The funds remain in the investor's bank account while the application is processed.
If shares are allotted, the applicable amount is debited.
If shares are not allotted, or the mandate is appropriately revoked or released, the blocked funds become available again according to the applicable process.
Advantages
Reduces unnecessary movement of funds.
Improves transparency in eligible transactions.
Can simplify IPO applications and other mandate-based payments.
Helps ensure that funds are available when a valid debit becomes due.
UPSC Prelims Key Pointers
NPCI operates UPI as a retail payment system.
UPI supports real-time, interoperable bank-to-bank payments.
Blocking funds is different from immediately debiting and transferring them.
A UPI mandate is an authorisation for a specified payment or future debit, subject to its terms.
UPI is a digital payment mechanism, not a cryptocurrency or blockchain-based currency.
The Reserve Bank of India (RBI) regulates payment systems in India under the relevant legal framework.
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