Summary: Continuing the overhaul exercise, RBI has released the draft master directions on PPI which proposes a significant change to the existing framework, aimed at simplifying classification, strengthening regulatory oversight, and curbing misuse of prepaid instruments. These reforms signal RBI’s intent to align the PPI ecosystem with evolving risk considerations while promoting a more streamlined framework.
BACKGROUND
The Reserve Bank of India on May 20, 2026, released the draft Master Direction on Prepaid Payment Instruments (“PPIs”), 2026 (“Draft PPI MD”), proposing a comprehensive overhaul of the existing regulatory framework, i.e. Master Directions on Prepaid Payment Instruments, dated August 27, 2021 (“PPI MD”), governing PPIs. The proposed directions seek to, inter alia, streamline the classification of PPIs, impose stricter controls on cash usage, and tighten the regulatory regime governing cross-border transactions.
ANALYSIS
The key changes proposed under the Draft PPI MD are detailed below:
| Particulars | 2021 PPI MD | 2026 Draft PPI MD |
| Classification of PPIs | Small PPIs Full Know Your Customer (“Full-KYC”) PPIs; and Gift PPIs | Two overarching categories proposed: General Purpose PPI – comprising Full-KYC PPI and Small PPI (single type, no further sub-types); and Special Purpose PPI – comprising Gift PPI, Transit PPI, PPI for Foreign Nationals/ Non-Resident Indians (“NRIs”), and any other with prior RBI approval. |
| Definition of “Merchant” | ‘Merchant’ is an establishment with a specific contract to accept PPIs of the PPI issuer (or contract through a payment aggregator/ payment gateway) against the sale of goods and services, financial services, etc. | ‘Merchant’ is an entity, including a marketplace that sells goods, provides services, or offers investment products. |
| Marketplaces and Closed System PPIs | Closed System PPIs, i.e. PPIs issued by an entity for facilitating the purchase of goods and services from that entity only. These do not require RBI approval. | The draft framework removes the earlier express reference to ‘closed system PPIs’. Further, the revised PPI definition clarifies that issuance of an instrument by an entity other than a marketplace, solely for the purpose of facilitating the purchase of goods or services from such entity itself, will not be regarded as operating a payment system. |
| Small PPI – Expiry Consequences | The PPI MD categorises Small PPIs into the following: (i) PPI with no cash loading facility – such PPIs are reloadable (from a bank account/ credit card/ full-KYC PPI), without any mandatory requirement to convert into full-KYC PPI; and (ii) PPI with cash loading facility – such PPIs must be converted to Full-KYC PPIs, within 24 months from the date of issue, failing which no further credit will be allowed in it. Such PPIs are also permitted to be converted to Small PPIs (with no cash loading facility). | The distinction between Small PPIs (with no cash loading facility) and Small PPIs (with cash loading facility) has been removed. A Small PPI will have a maximum validity of two years from the date of issuance. Upon its expiry, the issuer will not issue another Small PPI to the same customer. Outstanding balance in such PPIs will be transferred either ‘back to source’ or to a verified bank account upon expiry. |
| Monthly Debit Limit – Full-KYC PPIs | The outstanding amount in such PPIs must not exceed INR 2,00,000/- at any point in time. There is no monthly debit limit for full KYC PPIs. | The total amount debited monthly from a full KYC PPI must not exceed INR 2,00,000/-. |
| Cash Loading Limit – Full-KYC PPIs | Cash loading is capped at INR 50,000/- per month. | Cash loading is limited to INR 10,000/- per month. |
| Person to Person (“P2P”) Transfer Limits – Full-KYC PPIs | For pre-registered beneficiaries, P2P funds transfer limit is INR 2,00,000/- per month, per beneficiary. For all other cases, the transfer limit is restricted to INR 10,000/- per month. | P2P fund transfers for all beneficiaries (to a bank account or to other PPI) will be limited to INR 25,000/- per month. |
| Permissible Loading Sources – General Purpose PPIs | PPIs are permitted to be loaded/ reloaded through cash, debit to a bank account, credit cards, debit cards, PPIs (as permitted from time to time), and other payment instruments issued by regulated entities in India. | A PPI may be loaded by debit to a bank account or another PPI, or by cash, unless specified otherwise. However, only a Special Purpose PPI may be loaded by a credit card. |
| Gift PPI – Cash Purchase | No prohibition on purchase of Gift PPIs through cash. | Gift PPIs cannot be purchased using cash. |
| Cross-Border Transactions | Full-KYC PPIs, issued by banks having Authorized Dealer- category I license, are permitted to be used for cross-border outward transactions (only for permissible current account transactions under FEMA, viz. purchase of goods and services), with per transaction limit of INR 10,000/- and per month limit of INR 50,000/-. Bank and non-bank PPI issuers, appointed as Indian agents of authorised overseas principals, are permitted to issue full-KYC PPIs to beneficiaries of inward remittances under the Money Transfer Services Scheme (MTSS) of RBI cross-border outward transactions for permissible current account transactions under FEMA, with per transaction limit of INR 10,000/- and per month limit of INR 50,000/, also permitted for inward remittances under MTSS. | Complete Prohibition,i.e. use of a PPI for cross-border transactions is not permitted. |
| Core Portion Interest Computation | The core portion is computed by taking the lowest daily outstanding balance ‘fortnightly’ for a year and then averaging the lowest fortnightly balances. | The draft revises the methodology for computing interest on the core portion by moving from a fortnightly to a monthly calculation framework. Step 1: Compute lowest daily outstanding balance monthly, for 12 months, from the preceding month. Step 2: Take the average of the 12 lowest monthly outstanding balances to compute the Core Portion. |
| PPIs for Foreign Nationals/ NRIs – Eligibility & Limit | The PPI facility could be extended only to foreigners or non-resident Indians travelling from G20 countries andarriving at select international airports. The amount outstanding in such PPIs at any point in time must not exceed the limit applicable on full-KYC PPIs (i.e., INR 2,00,000/-). | A PPI wallet may be issued to all foreign nationals/ NRIs, after physical verification of passport and visa, for making person to merchant payments during their stay in India. Total amount debited from such PPI during any month must not exceed INR 5,00,000/-. |
| Limiting Customer Liability Framework | Detailed standalone provisions with specific customer liability limits, depending on reporting timeline and nature of breach, specifically for non-bank PPI issuers. | The specific provisions relating to customer’s limited liability has been removed and PPI issuers are required to comply with the Reserve Bank of India (Commercial Banks – Responsible Business Conduct) Directions, dated November 28, 2025 (“Commercial Bank Directions”). While the provisions on customer liability remain unchanged, the Commercial Bank Directions impose certain additional compliance obligations on PPI issuers, in relation to fraud management, risks associated with electronic transactions, robust security, etc. |
| Escrow Account Certification – Submission Deadline | Certificate signed by auditor(s) (in accordance with annex 5) must be submitted on a quarterly basis, within a fortnight from the end of the quarterto which it pertains. An annual certificate is also required. | Auditor’s Certificate on Maintenance of Balance in Escrow Account by 30th of the month, following the end of the quarter. |
| Co-branding Arrangements | Detailed provisions, including board-approved policy, due diligence of co-branding partner, liability of PPI issuer, along with the requirement of non-bank PPI issuers seeking one-time approval from DPSS, CO, RBI for co-branded PPIs. | The draft directions prescribe that the role of the co-branding partner will be limited to marketing or distribution-related activities. Further, the PPI issuer will be liable for all acts of the co-branding partner. No other compliances specific to co-branding have been prescribed. |
| Inactivity and PPI Closure | PPIs with no financial transaction for a consecutive period of one year will be made inactive by the PPI issuer after sending a notice. These can be reactivated only after validation and applicable due diligence. | A PPI, other than a Transit PPI, with no financial transaction for a consecutive period of one year will be classified as inactive and will be closed after one year of being classified as inactive, unless reactivated by the PPI holder. |