RBI proposes special-use wallets for foreign residents, domestic transit and gifts

The Reserve Bank of India has issued a draft paper on prepaid payment instruments (PPIs), proposing the introduction of prepaid wallets for special use cases such as domestic transit, foreign nationals or non-resident Indians (NRIs) in India, and gifting. It also notified capital requirements for issuers of such wallets, while barring the use of PPIs for cross-border transactions.

PPIs are digital wallets that allow users to load money in advance and use it to make payments. PPIs are currently divided into two categories: full-KYC wallets, which require strict identity verification, and small wallets, which have simpler onboarding rules. “A PPI may be issued as a card, wallet, or in any such form/instrument which can be used to access the PPI and to use the amount therein. No PPI shall be issued in the form of a paper voucher,” the RBI draft said.

Utkarsh Bhatnagar, partner at Cyril Amarchand Mangaldas, said, “These PPI wallets are designed to complement UPI rather than compete with it. UPI works best for real-time payments directly from bank accounts, while PPIs are prepaid and ideal for tourists, mass transit, or controlled spending where opening a full Indian bank account isn’t practical. The draft makes PPIs much more usable by allowing them to be discovered and linked easily in popular UPI apps.”

The draft circular proposed classifying PPI wallets as ‘general purpose’, including full-KYC PPIs, small PPIs, and ‘special purpose’ PPIs across the following three categories.

• Gift PPI: A type of non-reloadable PPI utilised to purchase goods or services for gifting.
• Transit PPI: For payments across various modes of public transport such as metro, buses, rail, waterways, tolls and parking.
• PPI for foreign nationals or NRIs: For rupee-based transactions in India.

The draft also proposed that any other ‘specific-purpose PPI’ may be allowed with the prior approval of the RBI.

Full KYC PPIs may be issued for one year and will have a total balance as well as monthly transaction limit of ₹2 lakh, with possible sub-limits being set by issuers depending on customer risk profile and operational risks. Person-to-person (P2P) fund transfers between PPIs or to bank accounts will be capped at ₹25,000 per month and PPI loading via cash at ₹10,000. Small PPIs may be issued for up to two years with a maximum balance and monthly transaction limit of ₹10,000, only for the purchase of goods and services.

Gift PPIs will have a maximum value of ₹10,000, cannot be purchased with cash, and will have a validity of one year. Transit PPIs can be issued without KYC verification, will enjoy perpetual validity and have a maximum outstanding balance limit of ₹3,000 without the facility of withdrawal, refund or transfer of funds.

PPIs for foreign nationals and NRIs will be allowed under NPCI’s ‘UPI One World’ facility for making person-to-merchant (P2M) payments in India. Such PPIs can be loaded against foreign exchange by cash or through any payment instrument, with a total limit of ₹5 lakh, and will need to be closed upon expiry of the holder’s visa.

The fine print

All banks permitted to issue debit cards will be allowed to issue PPIs, the paper said, while a non-bank entity will need the RBI’s authorization to do so. They must submit an application that covers the proposed activity of the PPI, the draft said.

Non-bank applicants will need to have a minimum net worth of ₹5 crore, and attain a minimum net worth of ₹15 crore by the end of the third financial year of authorization. An entity regulated by any other financial-sector regulator will also need to furnish a no-objection certificate within 45 days of getting the RBI’s go-ahead. Existing KYC guidelines will apply to all non-bank PPI issuers.

Customers will be able to load their PPIs from their bank account, another PPI, or using cash, unless specified otherwise, the RBI proposed, adding that special-purpose PPIs may also be loaded through credit cards.

It added that bank PPI issuers may also be allowed to load them using business correspondents (BCs) and non-bank PPI issuers may load them through in-person agents. A PPI issuer will not be required to pay any interest on PPI balances.

Alay Razvi, managing partner, Accord Juris, said, “The RBI is clearly trying to sharpen PPIs around specific use cases, not turn them into a broad UPI alternative. The draft’s special-purpose buckets show a move toward tightly defined, practical payment needs.”

PPIs’ main advantage over UPI will be interoperability with other payment modes, which should improve usability and reach, Razvi said. Even so, PPIs remain tightly regulated, with balance caps, transfer limits, no interest, and no cross-border use, which means “they still sit below UPI in scope”, he added.

Refunds and customer protection

The paper also touched upon refunds in the case of failed, returned, rejected or cancelled transactions. “Refunds will need to be applied to the respective PPI immediately, even if such refunds result in exceeding the prescribed limits for that specific PPI category,” it said. However, refunds of transactions made using any other payment instrument will not be allowed to be credited to the PPI, it added.

PPI issuers will need to disclose all features of the instrument, associated charges, validity period, and terms and conditions in clear and simple language to the holder when issuing the PPI. They will also need to put in place a formal, publicly disclosed customer grievance redressal framework, including designating a nodal officer to handle the customer complaints, an escalation matrix and turnaround times for resolving complaints.

A PPI, other than a transit PPI, with no financial transaction for one year will be classified as inactive and closed after one year of being so classified, unless reactivated by the PPI holder, the RBI proposed. PPI issuers will need to inform users 45 days prior to the expiry or the PPI becoming inactive, and users will have the option to close their PPI at any time, it added.

Dilip Modi, founder and chief executive of Spice Money, said, “As the market evolves, clearer guardrails around security, grievance redressal, and issuer norms are critical for sustainable growth of PPIs.” He added that PPIs continue to serve distinct, high-utility use cases. “Sharper clarity on limits and usage reinforces their role as transaction instruments. The approach strikes the right balance between enabling innovation and ensuring consumer protection,” he added.