Policy Guidelines On Issuance and Operation of Prepayment Instruments in India

POLICY GUIDELINES ON ISSUANCE AND
OPERATION OF PREPAYMENT
INSTRUMENTS IN INDIA
Introduction
■ These Directions are called the Reserve Bank of India (Issuance and Operation of
Prepaid Payment Instruments) Directions, 2017 (Master Direction).
■ These Directions came into effect on October 11, 2017.
PURPOSE
■ To provide a framework for authorisation, regulation and supervision of entities
operating payment systems for issuance of 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 transactions as well as systems along
with customer protection and convenience.
■ To provide for harmonisation and interoperability of PPIs
PPIs are instruments that facilitate purchase of goods and services, including financial
services, remittance facilities, etc., against the value stored on such instruments. PPIs that
can be issued in the country are classified under three types viz. (i) Closed System PPIs,
(ii) Semi-closed System PPIs, and (iii) Open System PPIs.
■ 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. As these instruments
cannot be used for payments or settlement for third party services, the issuance and operation of
such instruments is not classified as payment system requiring approval / authorisation by the
RBI.
■ Semi-closed System PPIs: These PPIs are issued by banks (approved by RBI) and non-banks
(authorized by RBI) for purchase of goods and services, including financial services, remittance
facilities, etc., 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. These instruments do not permit cash withdrawal,
irrespective of whether they are issued by banks or non-banks.
■ Open System PPIs: These PPIs are issued only by banks (approved by RBI) and are used at any
merchant for purchase of goods and services, including financial services, remittance facilities,
etc. Cash withdrawal at ATMs / Points of Sale (PoS) terminals / Business Correspondents (BCs)
are also allowed through such PPIs.
■ The PPIs may be issued as cards, wallets, and any such form / instrument which can be
used to access the PPI and to use the amount therein. PPIs in the form of paper vouchers
shall no longer be issued.
■ Merchants are establishments who have a specific contract to accept the PPIs issued by
the PPI issuer (or contract through a payment aggregator / payment gateway) against the
sale of goods and services, including financial services.
■ PPIs can be loaded / reloaded by cash, by debit to a bank account, by a credit / debit card,
or from other PPIs. The loading / reloading of PPIs shall be through payment instruments
issued by entities regulated in India and shall be in Indian Rupees (INR) only. Banks and
non-banks are permitted to issue and reload such payment instruments through their
authorised outlets / branches / ATMs or through their authorised / designated agents.
■ And the cash loading of PPIs is limited to ₹ 50,000/- per month subject to overall limit of
the PPI. The limit on loading of PPIs via electronic / online means is subject to overall
limit of the PPI.
ELIGIBILITY TO ISSUE SEMI-CLOSED AND OPEN SYSTEM
PPIS
■ Banks which comply with the eligibility criteria, including those stipulated by
the respective regulatory department of RBI, shall be permitted to issue semi-
closed and open system PPIs, after obtaining approval from RBI.
■ Non-bank entities which comply with the eligibility criteria, including those
stipulated by the respective regulatory department of RBI, shall be permitted to
issue only semi-closed system PPIs, after obtaining authorization from RBI.
Capital and other eligibility requirements
■ All entities (both banks and non-banks), regulated by any of the financial sector
regulators and seeking approval / authorisation from the RBI under the PSS Act, shall
apply
■ Non-bank entities applying for authorisation shall be a company incorporated in India
and registered under the Companies Act 1956 / Companies Act 2013.
■ 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.
■ 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.
ISSUANCE
■ All entities approved / authorised to issue PPIs by RBI are permitted to issue reloadable
or non-reloadable PPIs depending upon the permissible type / category of PPIs as laid
down in paragraph 9 and 10 of these Directions.
■ PPI issuers shall have a clear laid down policy, duly approved by their Board, for
issuance of various types / categories of PPIs and all activities related thereto.
■ PPI issuers shall ensure that the name of the company which has received approval /
authorisation for issuance and operating of PPIs, is prominently displayed along with the
PPI brand name in all instances. The authorised entities shall also regularly keep RBI
informed regarding the brand names employed / to be employed for their products.
■ PPI issuers shall ensure that no interest is payable on PPI balances.
Categories of recognised PPIs
The New Directions recognize only two categories of PPIs:
■ Gift instruments and

■ PPI for mass-transit systems.
The Previous Circular recognized various other categories of PPIs, such as PPIs issued
by banks to Government organizations for onward issuance to beneficiaries of
Government sponsored schemes, and PPIs issued by banks to corporates for onward
issuance to their employees. Such categories of PPIs are no longer recognized. This is
likely to cause inconvenience to those entities which have already issued PPIs falling
in the category previously recognized.
CONCLUSION
■ The New Master Directions of 2017 have undoubtedly brought in a number of some
positive changes in the PPI regulatory regime which include the introduction of
interoperability, fraud prevention mechanisms, the steps to mitigate misuse of PPIs,
better consumer protection framework etc.
■ However, these have also introduced several obstructions for the stakeholders; reducing
the ease and convenience of using PPIs by introducing the stringent KYC compliance
requirement for PPI accounts to be completed in such a short period of time, the
substantial increase in the minimum net-worth requirements and various mandatory
security requirements to be fulfilled are some of the reasons because of which the PPI
industry may witness a downfall.
THANK YOU

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■ Gift instruments and

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