Shops that have partnered with banks can now provide cash withdrawal facilities to customers through the Unified Payments Interface or UPI.
The move will reduce the need for people to queue up at ATMs or bank branches, amid the nationwide lockdown to contain the spread of COVID-19.
No prior approval from the Reserve Bank of India (RBI) is needed for this facility.
The withdrawal limit is capped at Rs 2,000 per day per card in Tier III-VI areas, while in Tier I regions the cap is Rs 1,000, the central bank said on May 5.
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Any charges levied cannot exceed 1 percent of the transaction amount.
Banks can permit merchants to offer the service after conducting the required due diligence, the RBI said in a statement.
The RBI had already permitted cash withdrawal at Point of Sale (PoS) terminals using debit cards and open system prepaid cards.
"Cash can also be withdrawn at PoS terminals through Unified Payments Interface (UPI) as well as through the use of electronic cards that are linked with overdraft facility provided along with Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts," the RBI said.
The banking regulator mentioned that credit cards are not permitted for cash withdrawal at PoS terminals.
Customers can withdraw cash at the PoS terminal even if they are not purchasing goods/services from the merchant's establishment.Follow our full coverage of the COVID-19 pandemic here.