The proposed rules will look to replace the 2021 master directions and introduce a more structured regime for banks, fintech startups and wallet operators
The draft framework, which expands use cases such as UPI-linked wallets for foreign visitors, will be open for public comments till May 22
Non-bank applicants will be required to show at least ₹5 Cr net worth at the application stage and must cross ₹15 Cr threshold by the end of the third financial year of authorisation
The Reserve Bank of India (RBI) yesterday issued the draft framework to regulate prepaid payment instruments (PPIs).
Called the draft Master Direction on Prepaid Payment Instruments (PPIs), 2026the proposed rules will look to replace the 2021 master directions and introduce a more structured regime for banks, fintech startups and wallet operators.
As per RBI, the draft rules aim to develop a conducive framework for long term growth of PPIs and strengthen security of transactions via such instruments. The framework, which expands use cases such as UPI-linked wallets for foreign visitors, will be open for public comments till May 22.
The proposed rules define PPIs as a payment instrument in which “money is loaded and which facilitates subsequent transactions utilising this money”. Simply put, PPIs are digital wallets, prepaid cards and smart cards that can store money for digital transactions.
One of the major takeaways from the draft rules is the sharper division of PPIs into General Purpose and Special Purpose instruments. The former is further divided into two parts:
- Full-KYC PPI: This would be issued after a user fully complies with know your customer (KYC) norms. With a minimum validity of one year, the total outstanding amount (at any point) and debited amount (in a month) in such instruments shall not exceed ₹2 Lakhs. P2P fund transfers from such PPI will be limited to ₹25,000 per month, while cash loading will be limited to ₹10,000 a month.
- Small PPI: In case customer due diligence cannot be fully carried out, RBI has allowed wallet operators to issue one-time, small PPI after obtaining minimum details of the customer. With a maximum validity of two years, the small PPI will have to be upgraded to full-KYC PPI within the validity period. The amount outstanding at any point of time for small PPI shall not exceed ₹10,000, while total amount debited from a small PPI during any month will not exceed ₹10,000. Cash withdrawal and P2P funds transfers from such PPI will not be permitted.
For context, amount debited refers to charges that have already been settled, while the outstanding amount includes pending transactions that are not yet officially due.
Then, there are the special purpose PPIs that are divided into three categories. The first one is gift PPIs, which will have a maximum value of ₹10,000 but will not be allowed to be purchased via cash. It will have a maximum validity of one year from the date of issuance.
Second is transit PPI, which can be issued without KYC verification. With a perpetual validity, the outstanding amount in such PPI shall not exceed ₹3,000. RBI has proposed to bar withdrawal, refund or transfer of funds under this.
The third one is PPIs for foreign nationals and Non-Resident Indians (NRIs) visiting India. To be powered by UPI One World (NPCI’s UPI-linked digital wallet), this instrument will be issued after physical verification of passport and visa. This will enable foreign nationals and NRI to make P2M payments during their stay in the country. Total amount debited from such PPI during any month shall not exceed ₹5 Lakhs.
What The New Rules Means For Wallet Operators?
Under the proposed regime, banks already permitted to issue debit cards can issue PPIs with prior intimation to RBI. However, non-bank issuers will have to mandatorily seek authorisation from the central bank to issue such instruments and meet minimum net-worth requirements.
In line with existing rules, non-bank applicants will be required to show at least ₹5 Cr net worth at the application stage and must cross ₹15 Cr threshold by the end of the third financial year of authorisation. Promoters and directors of the applicants will also be required to comply with RBI’s fit-and-proper standards, spanning “financial integrity, good reputation and character, and honesty”.
The draft norms also make KYC compliance non-negotiable for non-bank issuers. The proposed master directions emphasise that small PPIs can still be issued with minimum details, but the conversion into full-KYC PPIs is encouraged.
Under the proposed regime, the RBI has also tightened escrow oversight. Non-bank issuers will be required to keep PPI funds in a separate escrow account with a scheduled commercial bank. These funds can only be used for authorised PPI business and a quarterly auditor certification will be required. No interest shall be payable on the balances maintained in the escrow account except on a certain “core portion amount” of the account.
Authorised issuers will also be required to submit annual, quarterly, monthly, and event-based reports under the proposed regime.
The proposed rules also bar cross-border use of PPIs, while emphasising that interest cannot be paid on PPI balances. No PPI shall be issued in the form of a paper voucher, read the draft norms.
The draft also allows PPI issuers to enter into co-branding arrangements. However, the role of co-branding partners shall be limited to marketing or distribution related activities, and the PPI issuer shall be liable for all acts of the co-branding partner.
To foster interoperability, the new guidelines reiterated direct wallet operators to ensure interoperability with card networks and UPI. The draft also allows PPI discovery on third-party UPI apps to make PPIs a part of the wider digital payments stack rather than isolated wallets.
On the customer protection front, the draft rules also direct issuers to clearly disclose all charges, validity periods, and terms in simple language. The platforms will also be required to establish a public grievance redressal framework, appoint a nodal officer and specify the escalation matrix.
The development comes just a day after the RBI rolled out a new e-mandate framework to unify all rules for recurring transactions across digital payment systems.
RBI Overhauls E-Mandates
Called ‘Digital Payments – E-mandate Framework, 2026’, the new norms, which came into force immediately, specify that no charges can be levied on the customer for using the e-mandate facility.
The new framework aims to standardise e-mandates and is expected to push issuers and acquirers to improve alerting, consent handling, dispute support and compliance workflows.
Under the new rules, customers opting for e-mandates will be required to complete a one-time registration via an additional factor of authentication (AFA). Any withdrawal or modification of an existing mandate will also require AFA validation.
The new framework also sets specific limits for when transactions can be processed without requiring AFA. General recurring transactions can be authorised without AFA for up to ₹15,000 per transaction, while payments for insurance premiums, mutual fund subscriptions, and credit card bills are permitted without AFA up to ₹1 Lakh per transaction.
Under the new norms, issuers are now mandatorily required to send a notification to the customers at least 24 hours before the actual debit. Additionally, a notification must be sent after every successful debit, including details for grievance redressal.
The new framework also puts the onus on acquirers to ensure that the merchants they onboard on their network comply with the framework.
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