RBI Issues Draft Master Direction on Prepaid Payment Instruments

The Reserve Bank of India (RBI) has released the Draft Master Direction on Prepaid Payment Instruments (PPIs), 2026, to strengthen the regulatory framework governing prepaid payment systems. Stakeholder comments have been invited until May 22, 2026.

The draft is aligned with the Payments Vision 2025 and seeks to replace the existing 2021 master directions. The emphasis is on the development of payment systems that are safe, secure, efficient, and accessible.

Authorization for PPI Business:

Banks permitted to issue debit cards may issue PPIs upon prior intimation to the RBI. However, non-bank entities are required to seek a Certificate of Authorization under the Payment and Settlement Systems Act, 2007 by submitting an application through RBI’s online portal. Such entities must be incorporated in India and their Memorandum of Association must cover PPI issuance.

Prior approval is required in cases involving takeover, acquisition of control, or transfer of payment system activity to unauthorised entities, while certain changes such as alteration in management require post-facto intimation. Foreign investment is subject to applicable FDI and foreign exchange regulations, with additional restrictions on investments from FATF non-compliant jurisdictions, including a 20 % cap on voting rights.

Capital Requirements and Governance:

The non-bank entity must have a minimum net worth of ₹5 crore at the time, which should scale up to a minimum of ₹15 crore within three financial years and be maintained thereafter.

The framework introduces “fit and proper” criteria for promoters and directors, requiring financial integrity and sound financial standing. Individuals will be disqualified if they have been convicted for economic offences, insolvency, or regulatory debarment, and vests discretion with the RBI to determine compliance.

Issuance, Loading and KYC Compliance:

The provisions of the RBI KYC Directions, 2025 shall apply to a non-bank PPI issuer, which ensures uniformity. PPIs may be issued in digital or card-based forms, expressly prohibiting paper vouchers. Loading is permitted through bank accounts, cash, or other PPIs. Special Purpose PPIs may also be loaded by credit card. No interest shall be payable on PPI balances, and cross-border transactions are not allowed.

Categorisation of PPIs

The draft classifies PPIs into Full-KYC PPIs (maximum balance of ₹2,00,000 with limits on transactions and transfers), Small PPIs (₹10,000 cap, restricted usage, two-year validity), and special-purpose instruments including Gift PPIs, Transit PPIs, and PPIs for foreign nationals and NRIs under the UPI One World framework, each subject to defined limits and restrictions.

Customer Protection and Dispute Management:

Issuers are required to disclose all terms and charges and establish grievance redressal mechanisms, including a nodal officer. Customers may seek recourse under the RBI’s Integrated Ombudsman Scheme, 2026.

Interoperability, Co-Branding, and Escrow:

A PPI issuer may enter co-branding arrangements, limited to marketing and distribution activities. Interoperability is enabled through card networks or the Unified Payments Interface (UPI) for Full-KYC PPIs. The PPI issuer shall be liable for all acts of the co-branding partner. Non-bank PPI issuers must maintain the funds in a separate escrow account with a Scheduled Commercial Bank (SCB) and co-mingling of funds is not allowed. Quarterly auditor certification is required for escrow compliance.

Expiry, Inactivity, and Reporting:

PPIs (other than Transit PPIs) inactive for one year shall be classified as inactive and closed after one year of being so classified unless reactivated. Issuers must notify holders via SMS, e-mail, or other means at reasonable intervals during the 45 days prior to expiry or inactivity. Outstanding balance must be transferred back to the source or to a verified bank account. Refunds from failed, returned, rejected, or cancelled transactions must be credited immediately, even if they exceed the prescribed limits for that PPI category; however, refunds from transactions using other payment instruments shall not be credited to PPIs. The draft also prescribes periodic submissions including annual net-worth certification (by September 30th), IS and Cyber Security Audit Reports, co-branding details, quarterly escrow compliance certificates (by 30th of month following quarter end), monthly PPI statistics (by 7th of next month), and non-periodic declarations for changes in Board of Directors.

The 2026 Draft introduces incremental compliance burdens, including mandatory online portal submissions, stricter reporting deadlines, and multilingual disclosure requirements. The most significant change is the codification of detailed “fit and proper” criteria for promoters and directors under Section 7, which now explicitly enumerates disqualification grounds and grants RBI authority to verify compliance through other regulators and government departments.