The RBI’s approval and its implications for Indian fintech companies

The Reserve Bank of India (RBI) is India’s central bank and the regulatory agency that oversees the Indian banking system. Along with other financial institutions, the RBI regulates fintech companies.

A recent central bank notification has left the whole fintech sector perplexed; start-ups in the industry are now seeking clarification on the information in order to continue operating.

In June, RBI notified that non-bank prepaid instruments (PPI) are not allowed to load credit lines on prepaid devices. This diktat by the bank is considered an attempt to shut down card-based fintech and firms that operate as neo-banks who have merged with banks to give credit cards.

The notification issued by RBI on June 20 reads,” PPI-MD does not permit loading of PPI from credit line”. Addressed to all authorized non-bank PPI issuers, the notification was immediately implemented.

The fintech start-ups have now sought extension and clarity from RBI on the notification.

Experts have questioned RBI’s decision and advised that the financial regulator should leave space for modern financial companies to offer innovative products and services to consumers.

After the notification was issued, fintech associations and start-ups held a meeting with the RBI, seeking an extension of six-month to implement the recent PPI mandate.

Sources at the meeting revealed that the RBI is sceptical about the possibility of people falling into the trap of cards and issuance of credit to the undeserving middle-income or less-income population.

What is PPI?

A prepaid instrument (PPI) is an instrument that can be loaded and reloaded with cash, debit to a bank account, or credit and debit cards before procuring goods and services.

This instrument issued by a non-bank PPI can be a smart card, internet account, internet wallet, mobile account, mobile wallet or paper voucher that can be used to derive a credit line for purchasing by a PPI holder.

How will the sanction by RBI impact the Indian fintech businesses?

The Indian fintech business is expected to be worth $1.3 trillion by 2025.With new-age technology and backing from local and global investors, India has 21 fintech unicorns and over 4000 fintech start-ups.
Over the years, RBI has managed to remain risk-averse toward fintech. However, the RBI plans to set up a fintech department to facilitate innovation in India’s fintech sector.
The fintech ecosystem has been pushed to difficulties with updates and mandates in the guidelines on PPI, payments bank, digital lending, credit cards, or crypto.
There are instances of loss that happened due to RBI’s guidelines-the rolling out of the Unified Unified Payments Interface (UPI) and implementation of stringent obligations to ensure KYC compliance in 2017 led to the loss of appeal in offering wallet services and the Concerns were raised and overseas corporations were barred from entering the digital lending, prepaid payment instruments, and buy now pay later (BNPL) markets.

While some guidelines and mandates by RBI did impact the rise of organizations in the financial sector, the current issue of non-bank PPI needs to be adequately addressed by RBI. It should clarify to what extent this notification will be applicable and provide sufficient time to fintech start-ups to ensure proper decision-making.


With the advancement of technology and economic growth, the fintech start-up ecosystem of India is expected to expand.
Therefore, all stakeholders must identify the vital problems in the initial stage and work together to implement robust solutions.
The authored article is written by Mr. Rohit Garg, Co-Founder & CEO, SmartCoin and shared with Prittle Prattle News exclusively.
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