Prepaid Payment Instrument (PPI)

Prepaid Payment Instrument (PPI)

News: Recently a committee was set up to review the Customer Service Standards in RBI Regulated Entities has recommended that “ the central bank should examine the extension of DICGC cover Prepaid Payment Instrument (PPI) to , which, at present, is available only to bank deposits.“

About PPI:
 Prepaid payment instruments (PPIs) help facilitate the purchase of goods and services, including financial services, remittances and fund transfers to family and friends against the value stored on such instruments.
 These instruments are generally pre-loaded cards and, in some cases, have a pre-defined purpose of payment.
 Some of the examples of PPIs include Paytm and GPay (semi-closed system PPIs), gift cards (closed system PPIs) and debit or credit cards (open system PPIs).

Who can issue PPI instruments?
 PPIs can be issued by banks and non-banks after obtaining approval from the RBI.
 As on November 9, 2022, over 58 banks including Airtel Payments Bank, Axis Bank, Bank of Baroda, Jio Payments Bank, Kotak Mahindra Bank, Standard Chartered Bank, UCO Bank and Union Bank have been permitted to issue and operate prepaid payment instruments.

What did the committee say?
 The committee mentioned that the RBI has authorised a number of banks and non-banks entities to issue PPIs in the country.
 The money kept in wallets is in the nature of deposits. However, currently, the DICGC cover extends only to bank deposits.
 Being deposits with the PPI issuers who are also regulated by the Reserve Bank, extending deposit insurance to the PPI segment needs examination.

About Deposit Insurance and Credit Guarantee Corporation:
 DICGC is a wholly-owned subsidiary of the RBI and provides deposit insurance.
 The deposit insurance system plays an important role in maintaining the stability of the financial system.
 The deposit insurance extended by DICGC covers all commercial banks including local area banks (LABs), payments banks (PBs), small finance banks (SFBs), regional rural banks (RRBs) and cooperative banks, that are licensed by the RBI.
 DICGC insures all deposits such as savings, fixed, current and recurring including accrued interest.
 Each depositor in a bank is insured up to a maximum of Rs.5 lakh for both principal and interest amount held by them as on the date of liquidation or failure of a bank.