The banking regulator has stated that its master direction on PPIs does not permit credit line loadings — an activity being carried out by several fintech credit card companies.
The Reserve Bank of India (RBI) has prohibited non-bank prepaid wallets and prepaid cards from loading credit lines — preset borrowing limits — into these platforms.
An increase in fintech-driven credit cards and buy-now-pay-later wallets is aiding the growth of credit.
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What does the RBI announcement say?
The RBI has made it clear in its master direction on prepaid payment instruments that credit lines cannot be used to load PPIs. Several fintech credit card providers, including those that tie up with banks or non-banking firms, offer credit lines into their prepaid wallets.
“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?
Prepaid payment instruments, also known as payment devices, are devices used to make payments for goods and services, transfer money, and transmit remittances that have value stored within or on the device. PPIs are available in many forms, including payment cards, mobile wallets, magnetic chips, vouchers, and smart cards. Banks and non-banking companies can issue PPIs.
What is a credit line?
A credit line is an allocation that gives a person or company access to credit at any time, as required. It resembles a flexibly available loan in contrast to a lump-sum loan, where a constant amount is borrowed.
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Why has the RBI issued this notification?
The regulator’s determination to curtail credit products is motivating banks to work with fintechs like SBM Bank, RBL Bank, Federal Bank, and others, which are offering these products. Some fintechs partner with NBFCs to offer these products, and some NBFCs extend credit lines. In some situations, the fintech’s NBFC partner also extends credit lines. In light of Shaktikanta Das’ comments that the RBI would soon issue guidelines to regulate digital payments, the regulator might intervene in this area as well.
What fintech companies are offering credit products in India?
Fintechs these days are most likely to offer a credit product alongside their core offerings. Paytm, Amazon Pay, LazyPay, and Simpl are a few examples. They all offer postpaid wallets with small credit limits. Slice, Uni, Fi, OneCard, and the like all offer credit cards in partnership with banks and NBFCs.
This article was earlier published on Indian Express –RBI puts a stop to credit lines on non-bank prepaid instruments
