Prepaid Payment Instrument

• 07 Jun 2023

For Prelims: Prepaid Payment Instrument, RBI, DICGC, Remittance, Insurance Fund, Regulated Entities.

For Mains: Coverage of DICGC to Prepaid Payment Instruments.

Why in News?

A committee reviewing customer service standards for RBI (Reserve Bank of India) regulated entities has recommended the extension of Deposit Insurance and Credit Guarantee Corporation (DICGC) toPrepaid Payment Instrument (PPI) to protect against fraud and unauthorized transactions.

• The committee has recommended that the RBI should examine the possibility of extending DICGC cover to PPI segment, including bank PPIs and later non-bank PPIs.
• The RBI should incentivize regulated entities to improve customer service and strengthen overall customer protection efforts.

What are Prepaid Payment Instruments?

• About:
  • 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 and full-KYC (know your customer) PPIs. Further, small PPIs are categorized as – PPIs up to Rs 10,000 (with cash loading facility) and PPIs up to Rs 10,000 (with no cash loading facility).
  • 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.
• Issuance:
  • PPIs can be issued by banks and non-banks after obtaining approval from the RBI.
    • As of November 2022, over 58 banks have been permitted to issue and operate prepaid payment instruments.
    • There are 33 non-bank PPI issuers as of May 2023.

What is DICGC?

• About:
  • 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.
• Coverage:
  • 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.
    • The earlier insurance cover provided by DICGC was Rs 1 lakh. However, the limit of insurance cover for depositors in insured banks was raised to Rs 5 lakh in 2020.
  • DICGC does not cover,
    • Deposits of foreign Governments.
    • Deposits of Central/State Governments.
    • Inter-bank deposits.
    • Deposits of the State Land Development Banks with the State co-operative banks.
    • Any amount due on account of any deposit received outside India.
    • Any amount which has been specifically exempted by the corporation with the previous approval of the RBI.
• Funds:
  • The Corporation maintains the following funds:
    • Deposit Insurance Fund
    • Credit Guarantee Fund
    • General Fund
  • The first two are funded respectively by the insurance premia and guarantee fees received and are utilised for settlement of the respective claims.
  • The General Fund is utilised for meeting the establishment and administrative expenses of the Corporation.

Source: IE