Prepaid Payment Instruments (PPIs)

• A committee formed to assess Customer Service Standards in RBI Regulated Entities has advised extending Deposit Insurance and Credit Guarantee Corporation (DICGC) coverage to PPIs.

ABOUT PREPAID PAYMENT INSTRUMENT (PPI)

• Prepaid Payment Instruments (PPIs) are a form of digital payment that allows users to buy goods and services, transfer funds, and pay bills using the value stored in them.
• PPIs can be issued by banks or other entities authorized by the Reserve Bank of India (RBI) under the Payment and Settlement Systems Act 2007, and they can be in various formats such as cards, mobile wallets, or online accounts.

Types

• There are two types of PPIs – small PPIs and full-KYC (know your customer) PPIs.
  • Small PPIs have a limit of Rs 10,000 and do not require full-KYC verification. They can be further divided into two subcategories: those that can be loaded with cash and those that cannot.
  • Full-KYC PPIs have a higher limit of Rs 2 lakh and require the user to provide identity and address proof. PPIs can be loaded or reloaded using various methods, such as cash, bank account transfer, or credit and debit cards. However, cash loading is restricted to Rs 50,000 per month and is subject to the overall limit of the PPI.
• Currently, PPIs do not have any protection against fraud or unauthorized transactions, unlike bank deposits which are covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
• A committee appointed by the RBI to review the Customer Service Standards in RBI Regulated Entities has suggested that the RBI should consider extending DICGC cover to PPIs as well.
• This would mean that PPI holders would get compensation in case of loss of money due to fraud or failure of the PPI issuer. If this recommendation is accepted by the RBI, it would be a big relief for PPI holders.

DEPOSIT INSURANCE AND CREDIT GUARANTEE CORPORATION (DICGC)

• The Deposit Insurance and Credit Guarantee Corporation (DICGC) is a specialised division of the Reserve Bank of India (RBI) that provides deposit insurance to bank customers in India.
• Deposit insurance is a system that protects the deposits of small savers in case of a bank failure.
• The DICGC was established in 1978 under the DICGC Act, 1961 and is under the jurisdiction of the Ministry of Finance, Government of India.
• Deposit insurance covers all types of bank deposits, such as savings, fixed, current and recurring deposits, up to a limit of 500,000 per depositor per bank. This limit was increased from Rs. 100,000 to Rs. 500,000 in February 2020.
• The premium for deposit insurance is paid by the insured banks themselves, so the depositors do not have to bear any cost for this protection. The DICGC has the power to cancel the registration of a bank if it fails to pay the premium for three consecutive half-year periods.