As per multiple news reports, the Reserve Bank of India (“RBI”) has issued a letter to all authorised non-bank issuers (“Non-Bank Issuer”) of Prepaid Payment Instruments (“PPI”) on June 20, 2022 (“Notification”) prohibiting them from loading credit lines into PPIs such as wallets and prepaid cards. The Master Directions on PPIs (“PPI-MD”) issued by the RBI on August 27, 2021, states that PPIs shall be loaded or reloaded by cash, debit to a bank account, credit and debit cards, PPIs (as permitted from time to time) and other payment instruments issued by regulated entities in India. This stipulation in the PPI-MD does not expressly allow or disallow the use of credit and hence, many fintechs like Slice, LazyPay and PayU continued to extend loans through prepaid cards issued by their respective partner banks. Even OlaMoney Postpaid Plus allows its customers to load credit in their Ola wallets. This letter by RBI has stirred up confusion due to the following reasons:
a. Prepaid cards issued by Non-Bank Issuers under their brands are actually issued by their partner banks and hence, it may be argued that such prepaid cards are exempt from the Notification. However, the loans that customers take when they use the prepaid card actually comes from the Non-Bank Issuers. Hence, more clarity is required from RBI as to whether such transactions are also prohibited as per the Notification.
b. The Notification was issued only to Non-Bank Issuers. However, it appears to have placed a blanket ban on loading credit lines into PPIs and it is unclear whether the Notification will also impact bank issued prepaid instruments.
The letter from RBI also mentioned that any non-compliance with the PPI-MD may attract penal actions under the provisions of Payment and Settlement Systems Act, 2007. Fearing such penal actions, many Non-Bank Issuers have already started pulling the plug on their prepaid cards, pending clarification from RBI.
An official circular by RBI pertaining to the Notification is awaited. The PPI-MD can be accessed here.
This update has been contributed by Anushkaa Shekhar (Assoicate).
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