RBI takes credit for curbing PPI financing

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On June 20, 2022, the Reserve Bank of India (RBI) issued directions to all non-bank prepaid payment instrument (PPI) issuers that loading of PPIs through credit lines was not permitted (PPI credit circular). This clarification was aimed at the several PPI credit-linked products offered by PPI issuers in partnership with banks and non-bank financial companies (NBFC).

There are several variations of these products in the market, some of which offer a one-time loan credit to the PPI to be repaid within agreed timelines without a specific end-use, a pre-approved credit line which can be drawn down as required, most commonly used for buy now, pay later (BNPL) purchases, or a single advance loaded on the PPI for a specific end-use. The RBI direction refers only to loading of PPIs through credit lines but the regulatory intent seems to prohibit all PPI-linked credit products. This position is reflected in paragraph 7.5 of the Master Directions on PPIs, to which the RBI refers in the PPI credit circular. Paragraph 7.5 states that PPIs may be loaded and reloaded using cash, debits to a bank account and credit and debit cards, implying that PPIs may not be loaded through credit lines, loans or advances.

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