Proposes Stricter PPI Framework, Tightening Oversight on Wallets and Fintech Ecosystem

Proposes Sweeping Overhaul of PPI Framework, Tightens Norms for Wallets and Fintechs

The Reserve Bank of India (RBI) has unveiled draft directions to comprehensively revamp the regulatory framework governing prepaid payment instruments (PPIs), signalling a decisive move to strengthen oversight, enhance customer protection, and reinforce trust in India’s rapidly expanding digital payments ecosystem.

The proposed Prepaid Payment Instruments Directions, 2026 aim to replace the existing 2021 master directions, introducing a more structured and forward-looking regime for both banks and non-bank issuers, including fintech firms and digital wallet operators.

At the heart of the overhaul is a refined classification of PPIs into general-purpose and special-purpose instruments, accompanied by tighter usage norms and transaction limits. Full-KYC wallets will continue to permit balances of up to ₹2 lakh, subject to monthly transaction caps. In contrast, small PPIs—issued with minimal documentation—will be more tightly ring-fenced, capped at ₹10,000 and restricted exclusively to merchant payments.

The central bank has also formally recognised emerging use cases such as transit wallets, gift cards, and prepaid instruments for foreign visitors under the “UPI One World” initiative, underscoring its intent to integrate prepaid instruments more deeply with public infrastructure and tourism ecosystems.

For issuers, the draft norms significantly raise the compliance bar. Non-bank entities will be required to maintain a minimum net worth of ₹5 crore at the time of entry, scaling up to ₹15 crore within three years. Additionally, promoters and directors must meet stringent “fit and proper” criteria. While authorisation will be granted on a perpetual basis, it will remain contingent on continuous regulatory compliance.

Customer protection forms a central pillar of the revised framework. Issuers must ensure transparent disclosure of charges, implement robust grievance redressal mechanisms, and integrate with the RBI’s ombudsman system. Notably, refunds for failed transactions must be processed immediately—even if doing so temporarily results in a breach of prescribed wallet limits.

The RBI has further strengthened safeguards around customer funds by mandating that wallet balances be maintained in escrow accounts with scheduled commercial banks, with strict prohibitions on fund commingling. Only a defined “core portion” of these balances will be eligible to earn interest, determined through a rolling calculation of outstanding amounts.

In a push towards greater interoperability, issuers will be required to enable full-KYC PPIs to function seamlessly across card networks and the National Payments Corporation of India’s Unified Payments Interface (UPI), enhancing usability, competition, and consumer choice.

The draft directions reflect the RBI’s calibrated approach—balancing innovation with prudential safeguards—as prepaid instruments evolve into a systemically important component of India’s payments landscape.

Stakeholders have been invited to submit their comments on the draft framework by May 22.