The Reserve Bank of India (RBI) has proposed overhauling the regulatory framework for prepaid payment instruments (PPIs), tightening governance norms, strengthening customer protection, and widening the scope of digital wallets in a bid to deepen trust in India’s fast-growing payments ecosystem.

The draft Prepaid Payment Instruments Directions, 2026, will replace the 2021 master directions and introduce a more structured regime for banks and non-bank issuers, including fintech firms and wallet operators.

At the core of the overhaul is a sharper classification of PPIs into general-purpose and special-purpose instruments, alongside stricter limits and usage rules. Full-KYC wallets will continue to allow balances of up to ₹2 lakh with monthly transaction caps, while small PPIs — issued with minimal documentation — will be tightly ring-fenced with a ₹10,000 cap and restricted to merchant payments only.

The RBI has also formalised newer use cases, including transit wallets, gift cards, and prepaid instruments for foreign visitors under the “UPI One World” framework, signalling its intent to integrate prepaid systems more deeply with public infrastructure and tourism flows.

For issuers, the norms raise the bar on entry and operations. Non-bank players must start with a minimum net worth of ₹5 crore and scale up to ₹15 crore within three years, while also meeting stringent “fit and proper” criteria for promoters and directors. Authorisation will be granted on a perpetual basis but remains subject to ongoing compliance.

Customer protection features prominently in the revised framework. Issuers must ensure clear disclosure of charges, maintain robust grievance redressal systems, and integrate with the RBI’s ombudsman mechanism. Refunds for failed transactions must be processed immediately, even if they temporarily breach wallet limits.

The central bank has also reinforced safeguards around funds by mandating that customer balances be parked in escrow accounts with scheduled commercial banks, with strict prohibitions on fund commingling. Only a defined “core portion” of these balances will be eligible to earn interest, based on a rolling calculation of outstanding amounts.

In a push for interoperability, the RBI has directed issuers to enable full-KYC PPIs to work seamlessly across card networks and the Unified Payments Interface (UPI), enhancing usability and competition.

The updated norms reflect the RBI’s calibrated approach — encouraging innovation in digital payments while tightening oversight to mitigate risks in an increasingly systemically important segment.

The last date for submitting comments is May 22.

“The RBI’s draft PPI guidelines are a timely step to strengthen trust and discipline in the digital payments ecosystem. As the market evolves, clearer guardrails around security, grievance redressal, and issuer norms are critical for sustainable growth,” said Dilip Modi, Founder and CEO, Spice Money.

Published on April 22, 2026