RBI bars all non-banking institutions from loading prepaid payment instruments with credit lines from July 1

Reserve Bank of India

The apex bank, Reserve Bank of India (RBI) in a notification has barred non-banking institutions including many fintech startups from loading prepaid payment instruments (PPIs) with credit lines from July 1 onwards.

“The PPI-MD (PPI-master direction) does not permit loading of PPIs from credit lines. Such practice, if followed, should be stopped immediately. Any non-compliance in this regard may attract penal action under provisions contained in the Payment and Settlement Systems Act, 2007,” said the central bank in its circular addressing the non-banking PPI issuers.

The latest notification from the RBI is likely to affect various fintech players including Jupiter, slice, LazyPay, Fi and others.

The PPI-MD, according to the banking regulator only authorises for the PPIs “to be loaded/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 and shall be in INR only”.

Currently, there are various players in the non-banking PPI issuers ecosystem in India providing plethora of services to the customers. These may range from allowing loading of credit lines in a wallet to partnering with banks to offer credit through co-branded prepaid cards.

Considering the growing number of complaints against digital lending companies, this notification from the Reserve Bank has come at a very crucial time. Even Shaktikanta Das, Governor, RBI last week talked about the apex bank’s plans of coming out with a comprehensive regulatory architecture to deal with challenges arising out of this sphere.

Also Read | RBI sets up panel to review customer service standards at banks, NBFCs, payment operators

In May, the central bank scrapped the registration certificates of five non-banking finance companies (NBFCs) for breaching the guidelines.

As per reports, the overall fintech industry size in India is likely to touch $1.3 trillion in the next three years, with BNPL segment accounting for the lion’s share of $43 billion thereby clocking a CAGR of 80 per cent.

While the RBI as a regulator has been doing its bit in maintaining the balance between innovation and regulation, it recently suggested the need for legislation to ensure sustainable growth of a sector like fintech.

The RBI in its annual report 2021-22 also said, “it is the endeavour of the Reserve Bank to mitigate such risks through careful choice of technology and frameworks, while providing an impetus to fintech in a wide array of useful applications in the financial service industry.”

Even as the number of startups and lenders in the fintech and digital domains have witnessed significant growth in the recent past, the apex bank has been diligently addressing the issues and grievances.

Steps taken by RBI like formation of a committee to draft a report on digital lending via mobile applications and web platforms and setting up a dedicated fintech department will go a long way in further promoting the rapidly evolving fintech sector through innovations.

Reportedly with 87 per cent people having adopted fintech against 64 per cent globally, India tops the chart in this regard. The spread of Covid-19 pandemic also played a key role in the rapid growth of this industry.

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