Master Directions on Prepaid… — RBI/DPSS/2021-22/82 | RBI master-direction

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Master Directions on Prepaid… — RBI/DPSS/2021-22/82 | RBI master-direction · Complied AI

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What changed

The Reserve Bank of India issues Master Directions to regulate and supervise Prepaid Payment Instrument issuers and system participants under the Payment and Settlement Systems Act, 2007. The directions apply to all banks and non-bank entities issuing Prepaid Payment Instruments in India. Non-bank entities require a minimum positive net-worth of Rs.5 crore at application, increasing to Rs.15 crore by the end of the third financial year. Issuers must maintain operational security, adhere to KYC and AML norms, maintain an escrow account with a scheduled commercial bank, and ensure interoperability through UPI and card networks. The framework sets transaction limits, validity periods, customer grievance redressal mechanisms, and rules for limiting customer liability in unauthorised electronic transactions.

What you must do

Non-bank PPI issuer is required to maintain the outstanding balance in an escrow account with any scheduled commercial bank.
A certificate signed by the auditor shall be submitted by the authorised entities to the respective Regional Office of DPSS, RBI on a quarterly basis certifying that the entity maintains adequate balances in the escrow accounts.

Key dates

Master Directions publication date: 27 Aug 2021

Who is affected

All Prepaid Payment Instrument Issuers (Banks and Non-banks) and System Participants

Thresholds

All non-bank entities seeking authorisation from RBI under the PSS Act shall have a minimum positive net-worth of Rs.5 crore as per the latest audited balance sheet at the time of submitting the application.
Non-bank entities shall achieve a minimum positive net-worth of Rs.15 crore by the end of the third financial year from the date of receiving final authorisation.
Cash loading to PPIs shall be limited to Rs.50,000 per month subject to overall limit of the PPI.
Small PPIs with cash loading facility shall have monthly and annual loading limits of Rs.10,000 and Rs.1,20,000 respectively, with a maximum outstanding amount of Rs.10,000.
Full-KYC PPIs shall have an amount outstanding not exceeding Rs.2,00,000 at any point of time.

Exceptions

Closed System PPIs are not regulated or supervised by RBI and do not require approval or authorisation.

Ask about this master direction

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Document text

Prepared for reading; wording retained from the source.

Official PDF

RBI/DPSS/2021-22/82 CO.DPSS.POLC.No.S-479/02.14.006/2021-22 August 27, 2021 ( Updated as on December 27, 2024 ) ( Updated as on February 23, 2024 ) ( Updated as on February 10, 2023 ) ( Updated as on November 12, 2021 ) All Prepaid Payment Instrument Issuers (Banks and Non-banks) and System Participants Madam / Dear Sir, Master Directions on Prepaid Payment Instruments (PPIs) This has reference to the Master Direction dated October 11, 2017 on Issuance and Operation of Prepaid Payment Instruments (PPI-MD) and subsequent amendments made thereto. Keeping in view the recent updates to PPI guidelines, it has been decided to issue the Master Directions afresh.

These Directions are issued under Section 18 read with Section 10(2) of the Payment and Settlement Systems Act, 2007.

Yours faithfully, (P. Vasudevan) Chief General Manager

Master Directions on Prepaid Payment Instruments (MD-PPIs)

1. Introduction

1.1 In exercise of the powers conferred under Section 18 read with Section 10(2) of the Payment and Settlement Systems Act, 2007 (Act 51 of 2007), the Reserve Bank of India (RBI) being satisfied that it is necessary and expedient in the public interest to do so, hereby, issues these Directions.

1.2 Short title and commencement

These Directions shall be called the Reserve Bank of India Master Directions on Prepaid Payment Instruments, 2021 (MD-PPIs, 2021); and
These Directions shall come into effect from the date they are placed on RBI website. However, in respect of instructions already issued, they shall be effective as per the respective timelines prescribed.

1.3 Applicability: The provisions of MD-PPIs shall apply to all Prepaid Payment Instrument (PPI) Issuers and System Participants.

1.4 Purpose

To provide a framework for authorisation, regulation and supervision of entities issuing and operating PPIs in the country;
To foster competition and encourage innovation in this segment in a prudent manner while taking into account safety and security of systems and transactions along with customer protection and convenience; and
To provide for harmonisation and interoperability of PPIs.

1.5 Banks and non-bank entities issue PPIs in the country after obtaining necessary approval / authorisation from RBI under the Payment and Settlement Systems Act, 2007 (PSS Act). Taking into account the developments in the field and the progress made by PPI issuer, the existing instructions issued on the subject till date have been incorporated and are consolidated in these Master Directions (MD).

1.6 The MD lays down the eligibility criteria and the conditions of use for Payment System Operators (PSOs) involved in the issuance and operation of PPIs in the country.

1.7 No entity can set up and operate payment systems for PPIs without prior approval / authorisation of RBI.

2. Definitions

For the purpose of this MD, the following definitions shall be applicable:

2.1 Closed System PPIs: These PPIs are issued by an entity for facilitating the purchase of goods and services from that entity only and do not permit cash withdrawal. These instruments cannot be used for payment or settlement for third party services. The issuance or operation of such instruments is not classified as a payment system requiring approval / authorisation by RBI and are, therefore, not regulated or supervised by RBI.

2.2 Entities / Entity: The term ‘entities / entity’ refer/s to banks / non-banks who have approval / authorisation from RBI to issue PPIs as well as those who are proposing to issue PPIs.

2.3 Holder: Individuals / Organisations who obtain / purchase PPIs from the issuer and use them for purchase of goods and services, financial services, remittance facilities, etc.

2.4 Issuer: Entities issuing PPIs to individuals / organisations.

2.5 Limits: All limits in the value of instruments stated in this MD, indicate the maximum value of such instruments denominated in INR that shall be issued.

2.6 Merchants: Establishments who have a specific contract to accept the PPIs of the PPI issuer (or contract through a payment aggregator / payment gateway) against the sale of goods and services, financial services, etc.

2.7 Net-worth: Shall consist of ‘paid up equity capital, preference shares which are compulsorily convertible into equity capital, free reserves, balance in share premium account and capital reserves representing surplus arising out of sale proceeds of assets but not reserves created by revaluation of assets’ adjusted for ‘accumulated loss balance, book value of intangible assets and deferred revenue expenditure, if any’. While compulsorily convertible preference shares reckoned for computation of net-worth can be either non-cumulative or cumulative, these shall be compulsorily convertible into equity shares and the shareholder agreements shall specifically prohibit any withdrawal of this preference share capital at any time.

2.8 Prepaid Payment Instruments (PPIs): Instruments that facilitate purchase of goods and services, financial services, remittance facilities, etc., against the value stored therein. PPIs that require RBI approval / authorisation prior to issuance are classified under two types viz. (i) Small PPIs, and (ii) Full-KYC PPIs.

Small PPIs: Issued by banks and non-banks after obtaining minimum details of the PPI holder. They shall be used only for purchase of goods and services. Funds transfer or cash withdrawal from such PPIs shall not be permitted. Small PPIs can be used at a group of clearly identified merchant locations / establishments which have a specific contract with the issuer (or contract through a payment aggregator / payment gateway) to accept the PPIs as payment instruments. The features of these instruments are explained in paragraph 9.1 of this MD.
Full-KYC PPIs: Issued by banks and non-banks after completing Know Your Customer (KYC) of the PPI holder. These PPIs shall be used for purchase of goods and services, funds transfer or cash withdrawal. The features of these instruments are explained in paragraph 9.2 of this MD.

3. Eligibility requirements for issuance of PPIs by banks

3.1 Banks that comply with the eligibility criteria, including those stipulated by the respective regulatory department of RBI, shall be permitted to issue PPIs after obtaining approval from RBI. Banks, seeking approval from the RBI under the PSS Act, shall apply to the Department of Payment and Settlement Systems (DPSS), Central Office (CO), RBI, Mumbai along with a ‘No Objection Certificate’ from their regulatory department, within 30 days of obtaining such clearance.

4. Capital and other eligibility requirements for issuance of PPIs by non-banks

4.1 Non-banks that comply with the eligibility criteria, including those stipulated by the respective regulatory department of RBI, shall be permitted to issue PPIs after obtaining authorisation from RBI. Non-banks, regulated by any of the financial sector regulators, seeking authorisation from the RBI under the PSS Act shall apply to the DPSS, CO, RBI, Mumbai along with a ‘No Objection Certificate’ from their respective regulator, within 30 days of obtaining such clearance.

4.2 Non-bank entities applying for authorisation shall be a company incorporated in India and registered under the Companies Act, 1956 / 2013.

4.3 Non-bank entities having Foreign Direct Investment (FDI) / Foreign Portfolio Investment (FPI) / Foreign Institutional Investment (FII) shall also meet the capital requirements as applicable under the extant Consolidated FDI policy guidelines of Government of India.

4.4 The Memorandum of Association (MoA) of the non-bank entity shall cover the proposed activity of PPI issuance.

4.5 All non-bank entities seeking authorisation from RBI under the PSS Act shall have a minimum positive net-worth of Rs.5 crore as per the latest audited balance sheet at the time of submitting the application. They shall submit a certificate in the enclosed format (Annex-2) from their Chartered Accountants (CA) to evidence compliance with the applicable net-worth requirement while submitting the application for authorisation. The application shall be processed by RBI based on this net-worth which shall be maintained at all times. Thereafter, by the end of the third financial year from the date of receiving final authorisation, they shall achieve a minimum positive net-worth of Rs.15 crore which shall be maintained at all times. Illustratively, if the entity is issued final authorisation on March 1, 2021, then it shall achieve a minimum positive net-worth of Rs.15 crore for the financial position as on March 31, 2023. Similarly, if the entity is issued final authorisation on May 1, 2021, then it shall achieve a minimum positive net-worth of Rs.15 crore for the financial position as on March 31, 2024.

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Master Directions on Prepaid Payment Instruments