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Explained: RBI puts a stop to credit lines on non-bank prepaid instruments

The banking regulator has clarified that its master direction on prepaid payment instruments (PPIs) does not permit loading of PPIs from credit lines -- a practice being undertaken by several fintech credit card companies.

Written by Pranav Mukul , Edited by Explained Desk | New Delhi |
Updated: June 22, 2022 12:24:09 pm
The RBI defines prepaid payment instruments (PPIs) as payment instruments that facilitate the buying of goods and services, including the transfer of funds, financial services, and remittances, against the value stored within or on the instrument. (File)

The Reserve Bank of India (RBI) has issued a notification disallowing non-bank prepaid wallets and prepaid cards from loading credit lines — preset borrowing limits — into these platforms.

This comes in the backdrop of a boom in credit instruments such as fintech-driven credit cards and buy-now-pay-later wallets.

What has RBI said in its notification?

The banking regulator has clarified that its master direction on prepaid payment instruments (PPIs) does not permit loading of PPIs from credit lines — a practice being undertaken by several fintech credit card companies. These companies typically tie up with banks or NBFCs and offer credit lines into their prepaid wallets.

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“Such practice, if followed, should be stopped immediately. Any non-compliance in this regard may attract penal action under provisions contained in the Payment and Settlement Systems Act, 2007,” the RBI noted.

What are PPIs?

The RBI defines prepaid payment instruments (PPIs) as payment instruments that facilitate the buying of goods and services, including the transfer of funds, financial services, and remittances, against the value stored within or on the instrument. PPIs are in the form of payment wallets, smart cards, mobile wallets, magnetic chips, vouchers, etc. As per the regulations, banks and NBFCs can issue PPIs.

What is a credit line?

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A credit line is a preset borrowing limit that allows an individual or a business access to credit at any time, as per need. It can be tapped into by the customer till the limit offered is not exceeded. It is like a flexible loan as against a lump-sum loan where a fixed amount is borrowed.

Why has the RBI issued this notification?

With credit products infiltrating the market, there is a renewed push by the regulator to clampdown in the interest of consumer safety. While some fintechs tie up with banks like SBM Bank, RBL Bank, Federal Bank, etc. to offer these products, some tie up with NBFCs. In some cases, the credit lines are also extended by the fintech’s NBFC partners. Recently, RBI Governor Shaktikanta Das had said that the regulator would soon issue norms to regulator the digital payments space.

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Which are the fintechs offering credit products in India?

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Today, most fintechs offer a credit product alongside their main offerings. Companies like Paytm, Amazon Pay, LazyPay, Simpl, etc offer postpaid wallets with small credit lines. Others such as Slice, Uni, Fi, OneCard, etc. offer credit cards in partnership with banks and NBFCs.

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First published on: 21-06-2022 at 03:38:17 pm
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