Deposit insurance cover for PPIs

  • June 7, 2023
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
No Comments

 

 

Deposit insurance cover for PPIs

Subject: Economy

Section: Monetary Policy

  • RBI committee to review the Customer Service Standards in RBI Regulated Entities (RE) has recommended to examine the extension of Deposit Insurance and Credit Guarantee Corporation (DICGC) cover to PPIs, which, at present, is available only to bank deposits.
  • To examine whether DICGC cover can be extended to bank PPIs and later to nonbank PPIs. At present DICGC only covers bank deposits.

Why RBI made the recommendation:

  1. The money kept in wallets is in the nature of deposits.
  2. All PPI issuers (both bank and non-bank) are regulated by RBI.

PPI Issuers

PPIs can be issued by banks and non-banks after obtaining approval from the RBI. As on November 9, 2022, over 58 banks and 33 non-bank PPI issuers as on May 30, 2023.

DICGC

DICGC is a wholly-owned subsidiary of the RBI and provides deposit insurance. The deposit insurance system plays an important role in maintaining the stability of the financial system, particularly by assuring the small depositors of the protection of their deposits in the event of a bank failure.

The deposit insurance extended by DICGC covers all commercial banks including local area banks (LABs), payments banks (PBs), small finance banks (SFBs), regional rural banks (RRBs) and co-operative banks, that are licensed by the RBI.

What does the DICGC insure?

DICGC insures all deposits such as savings, fixed, current and recurring including accrued interest. Each depositor in a bank is insured up to a maximum of Rs 5 lakh for both principal and interest amount held by them as on the date of liquidation or failure of a bank.

Pre-paid Instruments (PPI)

  • PPIs are instruments that facilitate the purchase of goods and services, conduct of financial services and enable remittance facilities, among others, against the money stored in them.
  • PPIs can be issued as cards or wallets. There are two types of PPIs:
    • Small PPIs: can be used only for purchase of goods and services (no withdrawal or transfer)
      • PPIs up to Rs 10,000 (with cash loading facility)
      • PPIs up to Rs 10,000 (with no cash loading facility)
    • Full-KYC PPIs– Limit of Rs. 2 Lakh. Use for purchase of goods and services, funds transfer or cash withdrawal
  • PPIs can be loaded/reloaded by cash, debit to a bank account, or credit and debit cards. The cash loading of PPIs is limited to Rs 50,000 per month subject to the overall limit of the PPI.
  • Banks / Non-banks permitted to issue PPIs can issue INR denominated full-KYC PPIs to foreign nationals / NRIs visiting India (G-20 only at present)
  • RBI has put stop on BNPL (Buy Now Pay Later) use of PPI cards- all non-bank Prepaid Payment Instrument (PPI) cannot load their PPIs through credit lines.
    • PPI-linked credit lines have been operating like shadow credit cards.
    • Their primary features like interest rates, terms/conditions, and repayment schedules closely resemble a credit card more than a loan product.
    • However, they do not comply with the regulatory requirements for credit cards.
Deposit insurance cover for PPIs economy