In recent developments, a committee reviewing customer service standards for Reserve Bank of India (RBI) regulated entities proposed the extension of Deposit Insurance and Credit Guarantee Corporation (DICGC) coverage to Prepaid Payment Instruments (PPIs). The move aims to bolster protection against fraud and unauthorized transactions in the PPI segment, which includes both bank and non-bank PPIs. The committee also encouraged the RBI to incentivize regulated entities to enhance customer service and reinforce overall customer protection measures.
Understanding Prepaid Payment Instruments
Prepaid Payment Instruments (PPIs) are tools that facilitate the purchase of goods and services, financial services conduct, and Remittance facilities, contingent on the funds present. Issued as cards or wallets, PPIs exist in two categories: Small PPIs and full-KYC PPIs. Small PPIs further divide into two types: those with cash-loading facilities up to Rs 10,000 and those without. The monthly cash loading of PPIs caps at Rs 50,000, subject to the overall limit of the PPI. Approved by the RBI, PPIs can be issued by both banks and non-banks. As of November 2022, over 58 banks have permission to issue and operate prepaid payment instruments, and there are 33 non-bank PPI issuers as of May 2023.
DICGC: Role and Functionality
The DICGC, a wholly-owned subsidiary of the RBI, provides deposit insurance, playing a crucial role in preserving the stability of the financial system. It achieves this by assuring small depositors that their deposits will be protected in case of bank failure. The DICGC extends protection across all commercial banks, including Local Area Banks, Payments Banks, Small Finance Banks, Regional Rural Banks, and licensed co-operative banks.
DICGC Coverage
DICGC insurance covers all deposits such as savings, fixed, current, recurring, including the accrued interest. The assurance measures up to a maximum of Rs 5 lakh, covering both the principal and interest amount held by depositors when a bank liquidates or fails. This cover was raised from its previous limit of Rs 1 lakh in 2020. However, the DICGC does not cover items like foreign Government deposits, Central/State Government deposits, inter-bank deposits, deposits of the State Land Development Banks with State co-operative banks, any deposit received outside India, or an amount specifically exempted by the corporation with prior approval from the RBI.
Fund Maintenance in DICGC
The DICGC maintains three funds – Deposit Insurance Fund, Credit Guarantee Fund, and the General Fund. The first two are respectively funded by the insurance premium and guarantee fees received and are used for settlement of the associated claims. The General Fund, on the other hand, is employed for meeting the establishment and administrative expenses of the Corporation.