The Reserve Bank of India (RBI) has issued the Draft Master Direction on Prepaid Payment Instruments (PPIs), 2026 for public comments.

The draft seeks to repeal and replace the earlier Master Directions dated August 27, 2021. These draft master directions are issued under Section 18 read with Section 10(2) of the Payment & Settlements Act, (PSS Act) 2007. These master directions follow a comprehensive review and is aligned with Payments Vision 2025 to support the long-term growth of PPIs with enhanced transaction security. Our explanatory blog on Payments Vision 2025 can be accessed here.

Applicability of the Directions

The proposed directions apply to all PPI issuers and system participants. Banks already permitted to issue debit cards may issue PPIs after prior intimation to RBI. Non-bank entities must obtain authorisation through RBI's online portal before commencing PPI business. However, all authorisation or approvals granted under the 2021 master directions shall remain valid.

What Are Prepaid Payment Instruments?

The draft defines a PPI as a payment instrument in which money is loaded in advance and later used for transactions. It clarifies that the money must be denominated in Indian Rupees and does not include digital currency. It also notes that instruments issued by an entity, other than a marketplace, only for purchasing its own goods or services are not treated as a payment system requiring RBI authorisation.

Categories of PPIs

1. General Purpose PPIs
   • Full-KYC PPIs

These may be issued after completion of customer due diligence in accordance with Master Directions on KYC and with a minimum validity of a one year. The outstanding balance cannot exceed ₹2 lakh at any point of time. Monthly debits are capped at ₹2 lakh. Person-to-person transfers are limited to ₹25,000 per month. Cash loading is capped at ₹10,000 per month.

• • Small PPIs

These may be issued where full due diligence has not been completed, subject to minimum customer details such as OTP-verified mobile number and self-declared identity details. Small PPIs can be issued with the maximum validity of two years. The outstanding balance is capped at ₹10,000 and monthly debits are limited to ₹10,000. These instruments may only be used for purchase of goods or services. Cash withdrawal and person-to-person transfers are not allowed.

2. Special Purpose PPIs
   • Gift PPIs

Gift PPIs are non-reloadable, typically utilised for gifting purposes for purchase of goods or services at merchants, valid for up to one year, and cannot exceed ₹10,000 in value. Cash withdrawal and transfers are not permitted.

• • Transit PPIs

Transit PPIs are intended for payments across public transport systems such as metro, buses, railways, waterways, tolls, and parking. They may be issued without KYC verification, may hold up to ₹3,000, and may have perpetual validity.

• • PPIs for Foreign Nationals / NRIs

These PPIs may be issued under the UPI One World framework after physical verification of passport and visa. They may be loaded through foreign exchange and used for person-to-merchant payments during the holder's stay in India. Monthly debits are capped at ₹5 lakh. On visa expiry, the PPI must be closed and the unused balance returned to source.

Applicability of the Directions

The draft master directions shall apply to all PPI issuers and system participants. Banks already permitted to issue debit cards may issue PPIs after prior intimation to RBI. Non-bank entities must obtain authorisation through RBI's online portal before commencing PPI business.

Eligibility for Non-Bank Issuers

Non-bank applicants must be companies incorporated in India under the Companies Act. Their MoA must include PPI issuance as an approved business activity. The draft requires a minimum net worth of ₹5 crore at the application stage. A non-bank issuer must attain a net worth of ₹15 crore by the end of the third financial year of authorisation and maintain this on an ongoing basis.

Issuance and Loading of PPIs

PPIs may be issued as cards, wallets, or similar instruments used to access stored funds. The draft does not paper vouchers as PPIs. PPIs may be loaded through bank accounts, other PPIs, or cash unless otherwise specified. Special Purpose PPIs may also be loaded by credit card. PPIs cannot be used for any cross-border transaction.

Expiry, Inactivity and Closure

A PPI, other than a Transit PPI, with no financial transaction for one consecutive year will be classified as inactive. It will be closed after one additional year unless reactivated by the holder. The draft mandates PPI issuers to notify the PPI holder (via SMS/ e-mail/any other means) at reasonable intervals, during the 45 days' period prior to the expiry or the PPI becoming inactive. Separately, a PPI can also be closed on the request of the PPI holder. Outstanding balances must be transferred back to the source account or verified bank account, where available.