RBI Warns Against Using Credit Lines To Top Up Prepaid Instruments: Who Gets Hurt?

In a communication to prepaid instrument issuers dated June 20, the banking regulator has said that its master directions do not allow this.

"The PPI-MD does not allow loading of PPIs from credit lines.

emphasised that it will take action in case of non-compliance.

BQ Prime has reviewed a copy of the communication.

The master directions state that PPI issuers may allow loading or reloading of prepaid instruments by "cash, debit to a bank account, credit

According to a person with direct knowledge of the matter, this will affect prepaid instrument issuers who have built a lending ecosystem around their wallets.

repay the loan over time. Those issuing prepaid cards, branded as credit cards, will also likely be impacted.

The prepaid instrument industry is still seeking some clarity from the regulator on finer issues, the person quoted above said.

According to data available with the RBI, there are 37 non-bank PPI issuers in the market.

The RBI's letter is addressed to non-bank PPI issuers.

According to Nomura, if the RBI is creating a distinction between which regulated entity has issued the PPI

Likewise, there is commingling of money between PayTM postpaid and PayTM wallet (issues by PayTM Payment Bank), said Nomura.

"If, however, the RBI has sent or intends a similar letter to even bank issuers, then even these business models could face restrictions

Some of the new generation players were adding close to 2-3 lakh cards using PPI licenses

we believe many fintechs were using this as a channel to load credit," it said.

The positive impact is naturally on banks with a large credit card base, said Macquarie.