Context

• Prepaid Payment Instrument (PPI) holders may soon get protection for their money against any fraud or unauthorised payment transactions. 
• A committee set up to review the Customer Service Standards in RBI Regulated Entities has recommended that the central bank should examine the extension of Deposit Insurance and Credit Guarantee Corporation (DICGC) cover to PPIs, which, at present, is available only to bank deposits. If the committee’s recommendation is accepted, it will come as a big relief for PPI holders.

What are PPIs?

• PPIs are instruments that facilitate the purchase of goods and services, conduct of financial services and enable remittance facilities, among others, against the money stored in them. PPIs can be issued as cards or wallets. 
• There are two types of PPIs – small PPIs and full-KYC (know your customer) PPIs. Further, small PPIs are categorized as – PPIs up to Rs 10,000 (with cash loading facility) and PPIs up to Rs 10,000 (with no cash loading facility).
• PPIs can be loaded/reloaded by cash, debit to a bank account, or credit and debit cards. The 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?

• PPIs can be issued by banks and non-banks after obtaining approval from the RBI. As on November, 2022, 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 have been permitted to issue and operate prepaid payment instruments.
• There are more than 30 non-bank PPI issuers. Some of the non-bank PPI issuers are Amazon Pay (India), Bajaj Finance, Delhi Metro Rail Corporation Ltd, Manappuram Finance Ltd, Ola Financial Services, Razorpay Technologies and Sodexo SVC India Pvt.

What has the RBI committee recommended?

• The committee said the RBI has authorised a number of banks and non-banks entities to issue PPIs in the country recently. The money kept in wallets is in the nature of deposits. However, currently, the DICGC cover extends only to bank deposits.
• Being deposits with the PPI issuers who are also regulated by the Reserve Bank, extending deposit insurance to the PPI segment needs examination, the RBI-appointed committee recommended.

What is DICGC?

• DICGC is a wholly-owned subsidiary of the RBI and provides deposit insurance. The deposit insurance system plays an important role in maintaining the stability of the financial system, particularly by assuring the small depositors of the protection of their deposits 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 co-operative banks, that are licensed by the RBI.

What does the DICGC insure?

• DICGC insures all deposits such as savings, fixed, current and recurring including accrued interest. Each depositor in a bank is insured up to a maximum of Rs 5 lakh for both principal and interest amount held by them as on the date of liquidation or failure of a bank.

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