PPIs in News:

Deposit Insurance cover for Prepaid Payment Instruments (PPIs)

Important Points:

  • PPI holders may soon receive protection against fraud or unauthorized payment transactions.
  • A committee reviewing Customer Service Standards in RBI Regulated Entities has suggested that the central bank should consider extending Deposit Insurance and Credit Guarantee Corporation (DICGC) cover to PPIs. Currently, this protection is only available for bank deposits.
  • If accepted, this recommendation will provide significant relief to PPI holders.

What are PPIs?

  • PPIs are instruments that facilitate various transactions, including the purchase of goods and services, financial services, and remittance facilities, using the money stored in them.
  • PPIs can be issued as cards or wallets.
  • There are two types of PPIs: small PPIs and full-KYC PPIs. Small PPIs can further be categorized as up to Rs 10,000 (with cash loading facility) and up to Rs 10,000 (with no cash loading facility).
  • PPIs can be loaded or reloaded using cash, debit from a bank account, or credit and debit cards.
  • Cash loading of PPIs is limited to Rs 50,000 per month, subject to the overall limit of the PPI.

Who can issue PPI instruments?

  • Banks and non-banks can issue PPIs with approval from the RBI.
  • Presently, 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, are authorized to issue and operate prepaid payment instruments.
  • There are 33 non-bank PPI issuers, such as Amazon Pay (India), Bajaj Finance, Delhi Metro Rail Corporation Ltd, Manappuram Finance Ltd, Ola Financial Services, Razorpay Technologies, and Sodexo SVC India Pvt.

RBI committee recommendations:

  • The committee highlighted that money kept in PPI wallets is similar to deposits, but the current DICGC cover only applies to bank deposits.
  • Given that PPI issuers are also regulated by the RBI, the committee recommended examining the extension of deposit insurance to the PPI segment.
  • The RBI may assess the feasibility of extending DICGC cover to bank PPIs and later to non-bank PPIs based on experience gained.

What is DICGC?

  • DICGC is a wholly-owned subsidiary of the RBI and provides deposit insurance.
  • It plays a crucial role in maintaining financial system stability by ensuring small depositors’ protection in the event of a bank failure.
  • 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 licensed by the RBI.

DICGC coverage:

  • DICGC insures all types of deposits, such as savings, fixed, current, and recurring, along with accrued interest.
  • Each depositor in a bank is insured up to a maximum of Rs 5 lakh for both principal and interest held by them on the date of liquidation or failure of the bank.
  • The insurance cover for depositors in insured banks was raised to Rs 5 lakh in 2020, from the earlier limit of Rs one lakh.

Total number of PPIs in the system:

  • As per recent RBI data, there were 16,185.26 lakh PPIs as of March 31, 2023.
  • Among these, there were nearly 13,384.68 lakh wallets and 2,800.58 lakh cards. In FY2023, the total volume transacted through PPIs was 74,667.44 lakh.

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