The Unified Payments Interface (UPI) has completely transformed how Indians transact. From kirana stores to tech-savvy startups, UPI has become a household name. However, there has always been one weak link — delays in refunding failed or incorrect transactions.
Until now, if a transaction failed or was disputed, and the issue didn’t fall under the “automatic refund” bracket, banks or UPI apps had to wait for the National Payments Corporation of India (NPCI) to approve reprocessing. This often caused delays of several days or even weeks, leading to customer frustration.
But now, that’s changing. Starting July 15, 2025, a new policy announced by the NPCI allows banks and apps to independently handle certain refund scenarios, bringing in a faster and more transparent process for all users.
What is NPCI and Why Does It Matter?
The National Payments Corporation of India is the umbrella body that oversees various digital payment systems in India, including UPI. It acts as the central clearing authority, managing real-time payment settlements between banks and apps.
NPCI ensures:
- Security of transactions
- Authentication between sender and receiver
- Dispute resolution mechanisms
Earlier, even if a bank knew a dispute was valid, they still had to seek NPCI’s clearance to process the refund. This protocol was intended to prevent misuse but became an operational bottleneck over time.
Why This Policy Shift Was Needed
The need for a more efficient refund system arose from rising consumer complaints and increased transaction volumes.
UPI now facilitates over 18 billion transactions monthly, and even a small percentage of failure means millions of disputes every month. When users face failed transactions, even for small amounts, their trust in digital payments can erode quickly.
The delay was not because of lack of will from banks or apps, but because of protocols that made refund processing bureaucratic.
Breaking Down the New Rule from July 15, 2025
Banks & UPI Apps Empowered
Banks and Third-Party App Providers (TPAPs) like PhonePe, Google Pay, Paytm, etc., can now initiate a refund on their own in certain scenarios where earlier they couldn’t.
Introduction of RGNB System
A new dispute category titled Remitter Bank Raising Good Faith Negative Balance (RGNB) has been introduced. It allows the remitter’s bank to reinitiate a dispute claim that was previously rejected under good faith.
No NPCI Approval Required for Specific Disputes
If the issue falls under RGNB, banks can bypass NPCI validation and act independently.
Clearer Timelines for Response
- 3 calendar days (P2P) or 15 days (P2M) for receiving bank to respond.
- If no response is received, refund is auto-approved.
Technical Improvements: Behind the Scenes
This policy is part of a larger systemic upgrade within the UPI ecosystem.
- API response time reduced from 30+ seconds to 8–15 seconds
- Improved real-time transaction success rate
- Strengthened server uptime
Who Will Benefit From This Change?
Regular UPI Users
Faster refunds for wrong UPI IDs, failed payments, and merchant issues.
Banks
Improved service and reduced support load.
UPI Apps
Independence in refund handling improves user satisfaction.
Merchants
Quicker dispute resolution with customers.
A Real-World Example
Old System: Rakesh sends ₹5,000 to a wrong UPI ID. His bank raises a dispute via NPCI. Refund takes 7–15 days.
New System: Bank raises RGNB. If recipient bank doesn’t respond in 3 days, refund is issued within 1–4 business days.
Are There Any Safeguards to Prevent Abuse?
- Audit trails for every RGNB
- Compliance checks
- Penalties for misuse
What Are the Upcoming Changes Linked to This Policy?
- API usage caps from July 31, 2025
- Improved IMPS dispute handling from August 2025
FAQs
1. What is RGNB in UPI?
It stands for Remitter Bank Raising Good Faith Negative Balance. It allows a bank to retry processing a genuine failed refund.
2. Do all refunds go through RGNB now?
No. Only specific re-dispute cases use RGNB. Most refunds are still automatic.
3. How long does a refund take now?
Usually within T+1 business day. Auto-refund occurs if no bank response in allowed timeframe.
4. What happens if a bank misuses RGNB?
They can face audits and penalties. NPCI monitors all usage.
5. Does this change impact international UPI transfers?
Not at the moment. This rule applies only to domestic UPI transactions.
6. What if I still don’t get a refund?
You can raise a complaint via your UPI app or your bank’s grievance cell.
7. Which UPI apps support this rule?
All apps under NPCI’s framework like PhonePe, BHIM, Paytm, Google Pay, Amazon Pay.
8. Is the rule applicable to merchants as well?
Yes. Both P2P (person-to-person) and P2M (person-to-merchant) are covered.
9. Are there any exceptions to this policy?
Yes. Fraud, intentional misuse, and legal disputes may follow a different route.
10. Will this reduce UPI frauds?
It won't directly reduce frauds but will ensure genuine refunds happen faster.
Conclusion: A New Chapter in Digital Banking
The July 15, 2025 UPI refund rule marks a pivotal change in India’s digital finance journey. By empowering banks and UPI apps to process refunds without NPCI’s permission, the system becomes faster, smarter, and more user-friendly.
This bold step will help India strengthen its digital payment infrastructure and increase user trust.
Report by Toofan Express