Deposit Insurance Cover for PPIs

June 8, 2023

Context:

A RBI-appointed committee has recommended that the central bank should examine the extension of Deposit Insurance and Credit Guarantee Corporation (DICGC) cover to PPIs, which, at present, is available only to bank deposits.

What is a Prepaid Payment Instrument (PPI) ?

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.
Types of PPIs: Small PPIs and full-KYC (know your customer) PPIs.
Small PPIs: They are categorised as – PPIs up to Rs 10,000 (with cash loading facility) and PPIs up to Rs 10,000 (with no cash loading facility).
Loading of PPIs: PPIs can be loaded/reloaded by cash, debit to a bank account, or credit and debit cards.
Cash loading limit: Rs 50,000 per month subject to the overall limit of the PPI.
Who can issue PPI instruments?: PPIs can be issued by banks and non-banks after obtaining approval from the RBI.

Recommendation of RBI Committee:

The RBI has authorized several banks and non-bank entities to issue PPIs (Prepaid Payment Instruments) in India.
The money kept in PPI wallets is considered as deposits.
Currently, the Deposit Insurance and Credit Guarantee Corporation (DICGC) cover only applies to bank deposits.
A committee appointed by the RBI has recommended examining the extension of DICGC cover to bank PPIs.
The committee suggests that the RBI should assess the feasibility of extending deposit insurance to bank PPIs initially and later to non-bank PPIs based on experience gained.

Additional Information:

About DICGC:

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.

What does the DICGC insure?

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.

News Source: Indian Express