This article is an analysis of certain provisions in “Reserve Bank of India (Issuance and Operation of Prepaid Payment Instruments) Directions, 2017 (Master Direction)” which came into existence on 11 October of 2017 (RBI’s last updated:25 February, 2019).

What are PPIs?

As per the Master Direction(2.3), Prepaid Payment Instruments facilitate purchase of goods and services, including financial services, remittance facilities, etc., against the value stored on such instruments.

PPIs issued in India can be classified under these three heads:

  1. Closed System PPIs: Issued by an entity for processing the purchase of goods and services from them only. Example: Cleartrip Wallet.
  2. Semi-closed System PPIs: Can only be used within a closed circle of identified parties who are in contract with the issuer to accept the such instruments. Example: Mobikwik Wallet.
  3. Open System PPIs: Can be used for purchase of items and also allows the withdrawal of value in cash from ATMs and automated business correspondents. Examples: Visa.

Who can Issue PPIs?

While banking entities can issue Semi-closed and Open PPIs, non-banking entities can only issue Semi-closed PPIs with the approval/authorisation of RBI under PSS(The Payment and Settlement Systems) Act, 2007. Therefore, such non-banking entities should fulfill certain requirements while applying for the approval from RBI. They are:

  1. It shall be a company incorporated in India and registered under the Companies Act 1956/Companies Act 2013.
  2. Memorandum of Association (MOA) of such company shall cover the proposed activity of operating as a PPI issuer.
  3. Must have a minimum positive net-worth of Rs. 5 crore as per the latest audited balance sheet at the time of submitting the application.
  4. By the end of the third financial year from the date of receiving final authorization, the entity shall achieve a minimum positive net-worth of Rs. 15 crore which shall be maintained at all times.

After filing the required forms along with the application, RBI will review the application and issue Certificate of Authorization which has a validity of 5 years.

Additional Statutory Compliances

  1. All PPI issuers are asked to comply the provisions of: Know Your Customer (KYC) Direction, 2016 and Prevention of Money Laundering Act, 2002
  2. The entity should file Suspicious Transaction Reports (STRs) to Financial Intelligence Unit-India (FIU-IND).
  3. PPI issuers shall ensure that no interest is payable on PPI balances and Cash loading to such PPIs shall be limited to ₹50,000/- per month (₹1,00,000 if KYC of the PPI holder is done)subject to overall limit of the PPI.
  4. Co-Branding: The PPI issuer shall be liable for all acts of the co-branding partner. The Issuers shall also be responsible for all customer related aspects of the PPIs.
  5. Prepaid meal instruments: They shall ensure that these are issued only as semi-closed PPIs, are in electronic form and re-loadable.
  6. PPIs shall not be used for any cross-border outward fund transfer and/or for making remittances under the Liberalized Remittance Scheme. Upon special request, it is approved by limiting ₹10,000/- per such transactions, while per month limit shall not exceed ₹50,000/- for such cross-border transactions.
  7. Foreign-Exchange denominated PPIs are not under the purview of this rules. It is controlled under Foreign Exchange Management Act (FEMA) and other related rules.

Limitations!

There are many limits when it comes to the financial instruments used in Indian market. Like any other instrument, these too face severe legal revamps from time to time. Also, due to its digital nature, the Department usually fails to keep up with the new implications of these instruments in real-world scenarios.

One of the main hindrance for effective use of these instruments in our market, is the cash loading limit put by RBI. If the central bank can waive such limits, we will be able to give birth to new wallets and others digital currencies which can hold values and meet the need for common good.

What can we do?

Let’s try to make a change then! Here I attach the link of a change.org petition to RBI, for waiving off such limits or at least increasing the same for accommodating business transactions.

Let’s make a change!