RBI to tighten noose around prepaid products

The Reserve Bank of India (RBI) on Friday issued draft guidelines to regulate prepaid payment instruments (PPIs).

In the draft guidelines, the central bank has proposed to bring all PPIs, including certain mobile cards, food vouchers and pre-loaded petro cards, within its regulatory purview. The maximum value of these products should not exceed Rs 50,000 and their validity should not be more than six months, it said.

In the draft guidelines released this evening, RBI said mobile phone users will only be allowed to use the talk value on their prepaid cards only for purchase of value added digital contents and services that can be used on the mobile phones apart from payment for calls and text messages. The use of mobile prepaid value for purchase of other goods and services will not be permitted, the draft said, adding that encashment will not be permitted.

 

Agents of mobile service providers or retailers who offer prepaid cards or vouchers can load a maximum of Rs 5,000 on the instrument at a time.

To safeguard the interest of the users of PPIs, the draft guidelines said every month an issuer can deduct only 10 per cent of the remaining value on the instrument after its expiry.

RBI said that only entities authorised by it can launch such products. So far, only banks proposing to issue PPIs sought RBI approval, but with the enactment of a law on payment and settlement systems, all non-bank entities are also proposed to be brought within RBI’s regulatory control.

In case of banks and non-banking finance companies (NBFCs), the draft proposes to authorise only entities that meet the capital adequacy requirement to issue PPIs. In addition, only banks permitted to provide mobile banking transactions can launch products such as mobile wallets and mobile accounts.

For others, only entities with net owned funds of Rs 10 lakh or more will be allowed to issue these products. These players are proposed to be allowed to issue only closed system PPIs and semi-closed instruments.

Closed PPIs are issued by business establishments for internal use. Similarly, semi-closed PPIs are redeemable at identified merchant locations, which have specific contracts with the issuer. In both the cases, cash withdrawal or redemption is not permitted.

The draft also said that prepaid instruments issued by entities other than those authorised under Fema cannot be used for cross-border transactions.

Entities issuing closed system PPIs are exempted from the ambit of the proposed norms and need not seek RBI authorisation for issuing PPIs. However, they can issue instruments with a maximum value of Rs 5,000 and need to inform the regulator when they start operating such schemes. They will also be mandated to submit half-yearly audited statements.

In case of products offered by banks and NBFCs, the outstanding balances will be included in the net demand and time liabilities for maintenance of reserve requirements. For other entities, the outstanding balance has to be maintained in an escrow account with a scheduled commercial bank. But the bank cannot pay any interest, nor can the amount in the escrow account be used to access loans.Further, in case of a shortfall, the bank can link the escrow account to an interest-bearing account maintained by the issuer of the prepaid instrument to meet the payment requirements.