Prepaid Payment Instrument

Why in news?

• A committee reviewing customer service standards for RBI regulated entities has recommended the extension of Deposit Insurance and Credit Guarantee Corporation (DICGC) to Prepaid Payment Instrument (PPI) to protect against fraud and unauthorized transactions.

About Prepaid Payment Instrument:

• 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.
• There are two types of PPIs;
  • Small PPIs:
    • PPIs up to Rs 10,000 (with cash loading facility)
    • PPIs up to Rs 10,000 (with no cash loading facility).
  • Full-KYC (know your customer) PPIs.
• PPIs can be loaded/reloaded by cash, debit to a bank account, or credit and debit cards.
  • The cash loading of PPIs is limited to Rs 50,000 per month subject to the overall limit of the PPI.

Issuance:

• PPIs can be issued by banks and non-banks after obtaining approval from the RBI.
  • As of November 2022, over 58 banks have been permitted to issue and operate prepaid payment instruments.
  • There are 33 non-bank PPI issuers as of May 2023.

About Deposit Insurance and Credit Guarantee Corporation (DICGC):

• The functions of the DICGC are governed by the provisions of 'The Deposit Insurance and Credit Guarantee Corporation Act, 1961' and 'The Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961' framed by the Reserve Bank of India.
• DICGC is established for the purpose of insurance of deposits and guaranteeing of credit facilities
• The authorized capital of the Corporation is 50 crore, which is fully issued and subscribed by the Reserve Bank of India (RBI)

Banks covered by Deposit Insurance Scheme

• All commercial banks including the branches of foreign banks functioning in India, Local Area Banks and Regional Rural Banks.
• All State, central and primary co-operative banks operating in states/union territories have also been kept under its purview.

Insurance coverage

• Earlier, the depositor used to get only up to Rs 1 lakh in case of bank sinking or bankruptcy, but now the government has increased this to Rs 5 lakh.

Types of Deposits Covered

• DICGC insures all bank deposits, such as saving, fixed, current, recurring, etc. except the following types of deposits:
  • Deposits of foreign Governments;
  • Deposits of Central/State Governments;
  • Inter-bank deposits
  • Deposits of the State Land Development Banks with the State co-operative banks;
  • Any amount due on account of and deposit received outside India
  • Any amount which has been specifically exempted by the corporation with the previous approval of the RBI.

Insurance Premium

• The premium paid by the insured banks to the Corporation is required to be absorbed by the banks themselves so that the benefit of deposit insurance protection is made available to the depositors free of cost.
• In other words the financial burden on account of payment of premium should be borne by the banks themselves and should not be passed on to the depositors.

Settlement of claims

• In the event of the winding up or liquidation of an insured bank, every depositor of the bank is entitled to payment of an amount equal to his deposits held by him
• However, the payment to each depositor is subject to the limit of the insurance coverage fixed from time to time.

PRACTICE QUESTION

With reference to ‘Deposit Insurance and Credit Guarantee Corporation (DICGC)’, consider the following statements:

1. It is a fully owned subsidiary of RBI.

2. All commercial banks, including foreign banks with branches in India are mandated to take deposit insurance cover with the DICGC.

3. Deposits of Central or State Governments are not covered under DICGC

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 3 only

(d) 1,2 and 3

Answer