In the view of achieving the vision of less-cash society, the
Reserve Bank of India (RBI), on July 09, 2015, issued a circular
RBI/2015-16/123, to bring under its regulations a new category of
semi-closed Prepaid Payment Instruments (PPIs).
Under mass transit systems (MTS), as public at large are
involved, a number of small value cash payments transactions take
place. The RBI has introduced a new category of instrument i.e. in
form of cards which shall be issued by the MTS operators (like
railway, bus or taxi service providers), so that it can be used in
the transportation within these systems. The RBI had been receiving
requests from various segments of mass transit service providers,
such as metro train and road transport services, indicating the
need for introduction of prepaid instruments in this segment, to
enhance the public convenience.
WHAT IS MASS TRANSIT SYSTEM?
Mass transit, in other words mass transportation or public
transportation, is the way of movement of people within the urban
areas, wherein they are carried in same vehicle. This leads to
lower costs in carrying each person as the costs are shared by many
people. Examples of such systems are buses, trains, taxis etc.
MASS TRANSIT OPERATORS
Mass transit System (MTS) operators operate the networking of
these mass transit systems. In India, such MTS operators are Indian
Railways, Mumbai Metro, Delhi Metro and even local buses.
SEMI-CLOSED PREPAID PAYMENT INSTRUMENTS
These are the value stored instruments which represents the
underlying value paid by the holders in cash, by debit in bank
account, or by credit card. The PPIs can be issued as smart cards,
magnetic stripe cards, internet accounts, internet wallets, etc.
which can be used to access the pre-paid amount.
These instruments are regulated under the Payment &
Settlement Act, 2007 and other Regulations formulated under it.
GUIDELINES ISSUED FOR NEW CATEGORY OF PPI FOR THE MTS
The Regulator has issued a circular, wherein it has introduced
the new category of pre-paid instruments with the following
i. The semi-closed PPIs will be issued by the mass transit
system operator (PPI-MTS) after authorization under the Payment and
Settlement Systems Act, 2007 to issue and operate such semi-closed
ii. The PPI-MTS will necessarily contain the Automated Fare
Collection application related to the transit service to qualify as
iii. Apart from the mass transit system, such PPIMTS can be used
only at other merchants whose activities are allied to or are
carried on within the premises of the transit system ;
iv. The PPI-MTS issuer will ensure on-boarding of merchants
(only those permissible as under (iii) above) following due
procedure applicable to any other PPI issuer;
v. The PPI-MTS will have minimum validity of six months from the
date of issue;
vi. The issuer may decide upon the desired level of KYC, if any,
for such PPIs;
vii. The PPI-MTS issued may be reloadable in nature and at no
point of time the value / balance in PPI can exceed the limit of
Rs. 2,000/- (Rupees Two Thousand Only);
viii. No cash-out or refund will be permitted from these
ix. Funds transfer under the Domestic Money Transfer (DMT)
guidelines will also not be applicable to these PPIs;
x. All other extant guidelines for escrow arrangement, customer
grievance redressal mechanism, agent / merchant due diligence,
reporting and MIS requirements etc. applicable to issue of PPIs
would continue to be applicable in respect of PPI-MTS.
Based on experience, the guidelines will be reviewed by the RBI
taking into account both convenience and security aspects. The
above guidelines will come into effect from the date of issue of
circular. The other provisions of Master Circular dated July 1,
2015 (as amended from time to time) will remain unchanged.
These Prepaid payment Instruments for the mass transit system,
shall be similar to the pre-paid metro cards currently in use.
However, these existing cards are not regulated under existing PPI
regulations. These existing cards are issued by few banks like Sate
Bank of India (SBI) and ICICI Bank, in tie-up with MTS operators.
As these guidelines would now apply to the new category of PPIs,
the money will have to go to an escrow account, instead of the
current account of MTS operators. Also, the other existing PPI
guidelines shall be applicable on these new PPI.
Such measure of the RBI to allow MTS operators to issue their
own cards was intended to enhance the mode of such small amount
payments from cash based payments to electronic payments. Also it
would play a significant role in achieving the vision of less-cash
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Nishith Desai Associates is a research-based Indian law firm with offices in Mumbai, Silicon Valley, Bangalore, Singapore, Mumbai BKC, Delhi and Munich that aims at providing strategic, legal and tax...
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