Thoughts on use cases of RBI's single block and multiple debits on UPI

07 Dec 2022

RBI’s announcement of allowing single block and multiple debits on UPI can potentially have some interesting outcomes for the broking industry. A few thoughts.


The broking industry has a chequered past, with a few firms misusing customer funds. The regulatory changes over the last few years have ensured that such instances are unlikely in the future. But ensuring that retails investors are protected is a top priority for SEBI.

Unlike the past, a broker can’t hold customer securities in a pool account–it has to be in the customer’s own demat account. So the risk is limited to the idle funds with the broker. So, SEBI has mandated that unused funds be sent back to the customer bank once in 30/90 days.

This risk can be completely covered if the retail investors didn’t have to transfer funds to the broker and the money moves directly from the customer bank to the clearing corporation. And this is what a UPI mandate blocked in the name of Clearing corp (CC) can be used for.

This is likely to be optional as UPI is only one of the payment mechanisms used by investors, & UPI also has transaction limits. But if this comes through, it could give an option to investors who don’t want to be exposed to any broker risk.

It is also unlikely that a blocking mechanism can be used for intraday equity and F&O trades, which carry a significantly higher risk to the CC. Not having funds lie with the CC before allowing leveraged trades can expose CC to banking tech and default risks.

The good thing for the industry is that if this does happen, the operational and compliance burden of being responsible for customer funds will disappear, at least to the extent of customers using UPI mandates. Broking will be even more tech than financial services. 😃

The advantage that bank-based brokers have in terms of customers using money in the bank for trading & other purposes seamlessly will go away.

But brokers generate interest income from unused funds until it is sent back once in 30/90 days. So there will be a revenue hit.

There are positive and negatives if this were to come to pass. But it is phenomenal how India and our regulators are leveraging technology to potentially solve many issues that have historically plagued financial services. 9/9

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