RBI issues Draft Master Direction on Prepaid Payment Instruments (PPIs), 2026

The Reserve Bank of India released a draft Master Direction on Prepaid Payment Instruments (PPIs), 2026, for public consultation — replacing the existing 202...

What Happened

The Reserve Bank of India released a draft Master Direction on Prepaid Payment Instruments (PPIs), 2026, for public consultation — replacing the existing 2021 Master Directions — as part of a comprehensive regulatory review aimed at long-term growth of the PPI ecosystem with enhanced transaction security.
The draft establishes a tiered KYC-based framework: Full-KYC PPIs (maximum outstanding balance ₹2 lakh, monthly debit cap ₹2 lakh, P2P transfers up to ₹25,000/month, cash loading up to ₹10,000/month) and Small PPIs (maximum balance ₹10,000, no cash withdrawals or P2P transfers, must upgrade to Full-KYC within two years).
Special Purpose PPIs are defined with distinct limits: Gift PPIs capped at ₹10,000 (one-year validity, cannot be loaded with cash); Transit PPIs with ₹3,000 outstanding limit and perpetual validity; and foreign national/NRI PPIs allowing ₹5 lakh monthly person-to-merchant (P2M) payments after passport and visa verification.
Non-bank PPI issuers are required to maintain funds in a separate escrow account with a scheduled commercial bank and must demonstrate minimum net worth of ₹5 crore at application stage, scaling to ₹15 crore within three years.
The draft mandates interoperability: all Full-KYC PPI issuers must enable interoperability with card networks and UPI, ensuring PPI discoverability on third-party applications.
Issuers must disclose all charges, validity periods, and terms clearly, establish grievance redressal mechanisms, appoint a nodal officer, and specify an escalation matrix.
Stakeholder comments and feedback are invited until May 22, 2026, through the "Connect 2 Regulate" section of the RBI website.

Static Topic Bridges

Prepaid Payment Instruments (PPIs) — Definition and Regulatory Landscape

Prepaid Payment Instruments are financial products that facilitate the purchase of goods and services, fund transfers, and financial services using pre-loaded monetary value stored electronically. In India, PPIs are regulated under the Payment and Settlement Systems Act, 2007, with the RBI as the designated regulator. PPIs include digital wallets (such as mobile wallets), prepaid cards (credit or debit), and smart cards used for transit or specific purposes. The first Master Directions on PPIs were issued in 2017 and revised in 2021.

PPI issuers may be banks (which do not require a separate PPI licence) or non-bank entities (which must obtain authorisation from the RBI).
Full-KYC PPIs permit the broadest set of functionalities including P2P transfers and cash withdrawals.
Small PPIs (minimum-detail verification) serve financial inclusion objectives but carry restricted functionalities.

Connection to this news: The 2026 draft Master Direction represents the most comprehensive overhaul of PPI regulation since 2021, seeking to align the framework with the scale and diversity of India's digital payments ecosystem — including the emergence of UPI-linked wallets and demand from foreign visitors.

KYC (Know Your Customer) Norms in Digital Finance

KYC norms require financial service providers to verify the identity of their customers before onboarding them, to prevent money laundering, terrorist financing, and fraud. In India, the KYC framework is governed by the Prevention of Money Laundering Act (PMLA), 2002, the RBI KYC Master Directions, 2016, and SEBI and IRDAI sector-specific guidelines. For PPIs, KYC tiering determines the level of functionality a customer can access.

Full-KYC requires official identity and address documents (Aadhaar, PAN, passport, etc.) with in-person or V-CIP (Video Customer Identification Process) verification.
Small PPIs use minimum-detail verification (mobile number + self-declaration) and carry limited functionality as a trade-off.
Failure to upgrade Small PPIs to Full-KYC within 24 months results in expiry of the instrument.

Connection to this news: The draft's tiered KYC architecture — Full-KYC, Small, and Special Purpose PPIs — reflects the RBI's effort to balance financial inclusion (allowing limited-KYC entry points) with regulatory integrity (restricting high-risk functionalities until full verification).

Escrow Account Mechanism for Non-Bank PPI Issuers

An escrow account is a financial arrangement in which funds are held by a neutral third party (typically a scheduled commercial bank) on behalf of the parties to a transaction, to be released only under agreed conditions. For non-bank PPI issuers, the RBI requires that funds collected from customers for loading PPIs be held in an escrow account — not in the issuer's general operating account — to protect customer money in the event of the issuer's insolvency.

Quarterly certification by statutory auditors is required to confirm the adequacy of escrow balances.
Interest earned on escrow balances accrues as prescribed by the RBI.
This requirement distinguishes non-bank issuers from banks, which inherently protect depositor funds through the banking regulatory framework.

Connection to this news: The draft strengthens escrow requirements and links them to the issuer's net worth thresholds (₹5 crore → ₹15 crore), creating a capital adequacy safety net alongside the funds-segregation mechanism.

Interoperability in Payment Systems

Interoperability refers to the technical and operational capability of different payment systems and instruments to communicate and transact with each other without the customer needing to use specific proprietary channels. In India, interoperability for PPIs was first mandated for Full-KYC wallets in 2018, requiring wallet-to-wallet and wallet-to-bank transfers via UPI rails. The 2021 Master Directions further strengthened this by mandating card-network interoperability.

Interoperability ensures that a customer holding a Full-KYC PPI from one issuer can transact with merchants or users on another network.
UPI and card networks (Visa, Mastercard, RuPay) serve as the interoperability rails.
Greater interoperability reduces market fragmentation and lowers barriers for new entrants.

Connection to this news: The 2026 draft explicitly mandates Full-KYC PPI issuers to enable interoperability on both UPI and card networks — reinforcing the policy direction of a unified, interoperable digital payments infrastructure rather than siloed proprietary ecosystems.

Key Facts & Data

Instrument type: Draft Master Direction (for public consultation)
Issued by: Reserve Bank of India
Replaces: PPI Master Directions, 2021
Comment deadline: May 22, 2026 (via "Connect 2 Regulate" portal)
Full-KYC PPI outstanding limit: ₹2,00,000
Full-KYC monthly debit cap: ₹2,00,000
Full-KYC P2P transfer limit: ₹25,000/month
Full-KYC cash loading limit: ₹10,000/month
Small PPI balance limit: ₹10,000 (no cash withdrawal or P2P)
Gift PPI limit: ₹10,000 (1-year validity; no cash loading)
Transit PPI outstanding limit: ₹3,000 (perpetual validity)
Foreign national/NRI PPI: ₹5 lakh/month (P2M only, after passport + visa verification)
Non-bank issuer net worth: ₹5 crore (application) → ₹15 crore (within 3 years)
Refunds: Must be credited immediately to the PPI even if it causes temporary breach of limits
Legal basis: Payment and Settlement Systems Act, 2007