RBI bars credit lines for prepaid wallet topup

Mumbai: The RBI on Monday said that issuers of prepaid instruments (wallets) cannot allow them to be loaded using credit lines.
The difference between credit and a credit line is that credit is deposited in the borrower’s account whose interest meter starts ticking the moment the funds land. In a credit line, the bank makes available funds to the customer, but it turns into a loan only when the borrower draws the money.
This comes in the wake of certain wallet providers including an option that allows a user without balance to pay later by providing a line of credit. In a circular to all non-bank prepaid payment instrument (PPI) issuers, the RBI said that its guidelines permit PPIs to be loaded by either cash, debit to a bank account, credit & debit cards and other payment instruments in rupees.
“The PPI-MD does not permit loading of PPIs from credit lines. Such practice, if followed, should be stopped immediately. Any non-compliance in this regard may attract penal actions under provisions contained in the Payment and Settlement Systems Act, 2007,” RBI said.
Bankers said that the RBI has been adopting a light touch regulation on small-ticket credit including ‘buy now, pay later’. However, it has been insisting that providers make it clear to the borrower who the lender is and the cost of credit. Earlier this year, the central bank had sought information on first-loss default guarantee (FLDG) exposure of banks. FLDG refers to the credit guarantee provided to a regulated lender by a non-regulated entity. The RBI is against such arrangements because the guarantee is an off-balance sheet item, and the bank or the NBFC might have huge exposure to unregulated entities through such guarantees.
Speaking at a banking event on Friday, RBI governor Shaktikanta Das said that it does not intend to have a crackdown on ‘buy now pay later’ as it does not want to kill new ideas that are still in the incipient stage. “We are assessing what kind of leverage is there in the system,” he said.


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