Not long ago, industry payments data painted a grim picture - the prepaid payment instrument (PPI) industry was in freefall, with mobile wallets haemorrhaging users, transaction volumes cratering, and an industry desperately in need of a regulatory lifeline. The Reserve Bank of India (RBI), it seems, was listening.
The RBI has now released draft Master Directions on PPIs, 2026 (Draft Directions), inviting public comments. The goal it states, is to have ‘a conducive framework for long term growth of PPIs with enhanced security of transactions’. This is no incremental tweak to the existing framework. The Draft Directions propose two sets of sweeping changes to the existing 2021 Directions on PPIs, one structural, the other regulatory - and together, they could significantly reshape the PPI landscape.
The 2021 Directions had, over successive amendments, accumulated a patchwork of PPI categories: Small PPIs, Full-KYC PPIs, Gift PPIs, Mass Transit PPIs, PPIs for foreign nationals - each with its own set of conditions and limits. While these categories covered the essential ground, they resulted in a somewhat fragmented structure that lacked intuitive coherence
The Draft Directions cut through this clutter with a clean, two-tier framework: General Purpose PPIs (comprising Full-KYC and Small PPIs) and Special Purpose PPIs (Gift PPIs, Transit PPIs, PPIs for Foreign Nationals/NRIs, and any other purpose approved by the RBI). This is not mere cosmetic re-labelling. For issuers, investors, and market participants grappling with regulatory ambiguity, this structural legibility is a welcome development. When your regulatory architecture is clean, capital follows.
The second set of changes is where the regulatory intent shows its teeth. Cross-border transactions through PPIs, previously permitted for Full-KYC PPIs issued by AD-I licensed banks - are now completely prohibited. Cash loading limits for Full-KYC PPIs have been slashed dramatically from INR 50,000 to INR 10,000, and person-to-person transfers caps lowered significantly from INR 2,00,000 to INR 25,000 per month.
Perhaps the most notable intervention is the stipulation that an issuer can issue only one PPI, both in case of Full-KYC as well as Small, to a holder at any point in time. For Small PPIs, the restriction bites harder: upon expiry, no fresh Small PPI can be issued to the same customer. The operational modalities, such as enforcement across issuers, treatment of holders with instruments from multiple entities, will need further clarity. But the intent is clearly to stamp out the misuse of multiple PPIs to circumvent limits or enable unauthorised transactions.
The overall pattern is unmistakable: the RBI is deliberately narrowing the scope of what PPIs can do, ring-fencing them as instruments for every day, low-value domestic payments rather than conduits for high-value fund movement or cross-border activity. This is less about restriction and more about definition, the regulator is telling the market exactly what a PPI is meant to be.
This matters because the PPI industry’s crisis was never purely commercial, it was existential. Without a clear regulatory identity, PPIs risked becoming an anachronism in a UPI-first world. The Draft Directions offer that identity. They tell the market: PPIs have a distinct, legitimate role in the payments architecture, and here is precisely what that role looks like. Crucially, this regulatory clarity could unlock tangible, high-demand use-cases that are already deeply embedded in Indian consumer behaviour: pre-paid metro and transit cards, meal vouchers, and corporate expense instruments, giving them cleaner regulatory space and room to scale.
If finalised in substantially this form, the Draft Directions could mark a genuine inflection point - the moment the PPI industry stopped asking whether it had a future, and started building one.
About the authors: Sahil Arora is Partner and Ishaan Gupta is Associate at Saraf and Partners.
Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.
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