Introduction

On 22 April 2026, the Reserve Bank of India (“RBI“) released a Draft Master Direction on Prepaid Payment Instruments (“Draft Directions“), open for comments until 22 May 2026. The Draft Directions, if implemented, will repeal the Reserve Bank of India Master Directions on Prepaid Payment Instruments, 2021 (“Master Directions“). This article summarises the key changes sought to be introduced by the Draft Directions.

Closed-system PPIs and marketplaces 

The Master Directions clarified that closed-system PPIs are not subject to regulation by the RBI. While the Draft Directions now build this exemption into the definition of PPIs, they categorically specify that this exemption does not apply to marketplaces. Accordingly, issuance of a PPI by a marketplace for facilitating the purchase of goods or services from sellers listed on such marketplace may be a regulated activity. 

Any ambiguity around the regulatory treatment of marketplace-issued PPIs now appears to have been addressed, with the Draft Directions clarifying the RBI’s clear intent to regulate such models.

Digital currency

Interestingly, the Draft Directions explicitly clarify that loading of an instrument by digital currency would not constitute loading of a PPI. This is a clear indication that the RBI wishes to exclude digital wallets such as crypto-wallets, wallets with in-game currency or reward points from the ambit of PPI regulations. That said, the position remains unclear for hybrid wallet models that permit users to store both digital currency and INR balances, leaving open questions around the extent to which such structures may fall within the regulatory framework.

Categorisation of Prepaid Payment Instruments

The Master Directions had simplified a legacy three-tier categorisation into “full-KYC PPIs” and “small PPIs”. The Master Directions also regulated “gift PPIs”, “PPIs for mass transit systems” and “PPIs to foreign nationals”, however, it was not clear whether these PPIs constituted “full-KYC PPIs” or “small PPIs” or were altogether distinct categories of PPIs. 

The Draft Directions now club these PPIs into the following categories:

Higher Threshold of compliance

The Master Directions require a PPI issuer to comply with certain Reserve Bank of India (Know Your Customer (KYC)) Directions, 2016, and RBI’s circulars on liability for unauthorised electronic transactions. However, these circulars were recently withdrawn as part of RBI’s effort to consolidate its circulars. As a consequence, no specific RBI circulars on KYC and unauthorised electronic transactions were expressly applicable to PPI issuers.

The Draft Directions now propose to clarify that PPI issuers are required to comply with RBI’s norms on KYC and unauthorised electronic transactions as applicable to banks, which we believe was always the regulatory intent.

Interestingly, the Draft Directions also indicate that KYC may have to be conducted for the issuance of all PPIs, except for Transit PPIs and small PPIs (subject to limited due diligence and not full KYC requirements). This has notable implications for the gift-card industry business (discussed below in para 7).

PPIs for Foreign Nationals 

Notably, PPIs for foreign nationals are issued in the form of “full-KYC PPIs” under the Master Directions, and therefore, subject to various transactional limits. The Draft Directions propose to remove these transactional limits by treating PPIs for foreign nationals as a distinct category of PPIs. The Draft Directions specify that the total amount debited from a PPI for foreign nationals during any month may not exceed INR 5 lakhs, which is a notable increase from the extant limit of INR 2 lakhs.

Gift PPIs

The Master Directions permit PPI issuers to issue Gift PPIs without insisting on separate KYC details of purchasers if the purchase is made by debit to a bank account or through a credit card in India. Therefore, many Gift PPI issuers do not insist on the upfront collection of KYC details from the customers, and merely expect their distributors to collect KYC details of the purchasers if required by the issuer. 

Interestingly, the Draft Directions omit this exemption and generally require PPI issuers to comply with RBI’s KYC norms. Accordingly, whether Gift PPI issuers need to insist on upfront KYC details of their purchasers and make changes to their onboarding journeys remains a significant question.

Cross-border transactions

The Master Directions permit the use of full-KYC PPIs issued by Authorised Dealer Category I Banks for cross-border current account transactions by juridical persons. However, the Draft Directions propose to absolutely prohibit the use of PPIs (INR-denominated instruments) for cross-border transactions.  

Ideally, the RBI ought to consider phasing out cross-border PPIs in a phased manner and clarify the fate of the funds lying in such PPIs. Clarifications in this regard would be helpful.

Loading of PPIs

Use of credit cards: The Master Directions permit the use of credit cards to load PPIs. However, the Draft Directions propose to prohibit the use of credit cards to load general-purpose PPIs, reiterating RBI’s discomfort with use of credit-enabled payment products outside the credit card framework. In our view, keeping in mind the RBI’s past regulatory interventions, the underlying policy objective appears to be to prevent the use of borrowed funds for loading PPIs and subsequently facilitating peer-to-peer fund transfers. 

Use of cash for small PPIs: The Master Directions also categorised small PPIs into two: those that can be loaded by cash and those that cannot. The Draft Directions propose to remove this distinction and propose the issuance of only those small PPIs that may be loaded with cash.

Reduction in cash loading limits: The Master Directions permit loading of full-KYC PPI with up to INR 50,000 in cash. The Draft Directions propose to reduce this limit to INR 10,000.

Use of cash for Gift PPIs: The Master Directions do not prohibit the use of cash to purchase gift PPIs; the Draft Directions propose to do so. This appears to be in consonance with the regulatory stance on the gift card industry business and anonymity of source and utilisation of funds.

Key Takeaways

A review of the Master Directions was long overdue, and the issuance of the Draft Directions is a welcome step in streamlining and simplifying regulatory compliance. The Draft Directions bring clarity on many issues that the industry grappled with.

Interestingly, the RBI’s definitions of “payment aggregators” and “PPI” (under the Draft Directions) suggests the regulator’s discomfort with structures where entities transfer funds to a payee upfront and collect funds from payers subsequently. 

It is clear that the RBI is taking a risk-weighted approach towards cross-border payments: it proposes to limit the outflow of outward remittances through PPIs, and yet increase the transactional limit for inward remittances through PPIs. 

The RBI’s effort to reduce the use of cash and push many players in the industry (including gift card issuers and marketplaces) to rethink their business practices is also apparent.

The Draft Directions do not clarify the RBI’s position on whether distribution of Gift PPIs by unregulated entities remains outside regulatory ambit, or whether it is appropriate to expect PPI issuers to flow down contractual obligations to distributors. Given that Draft Directions propose KYC requirements for Gift PPIs and several other jurisdictions have expressly clarified that distribution of gift cards remain outside the regulatory framework, the RBI must consider clarifying the regulatory position.