RBI Slaps ₹21 Lakh Fine on PhonePe for PPI Rule Violations

The Reserve Bank of India (RBI) has imposed a penalty of ₹21 lakh on PhonePe Limited, as per news reports. The fine was issued for non-compliance with specific rules related to Prepaid Payment Instruments (PPIs).

A statutory inspection was conducted on the company’s operations between October 2023 and December 2024. The review highlighted instances where regulatory requirements were not followed.

Escrow Account Shortfall

According to the RBI, the end-of-day balance in PhonePe’s escrow account was lower than the value of outstanding PPIs and merchant payments on certain days. The company also did not immediately report this shortfall to the regulator, as required by existing norms.

Guidelines for PPI Issuers

RBI rules mandate that non-bank PPI issuers like PhonePe must ensure escrow account balances are at least equal to the value of all outstanding PPIs and pending merchant settlements at the end of each day. Any shortfall must be reported immediately to the Department of Payment and Settlement Systems (DPSS).

Show-Cause Notice

After the inspection, a show-cause notice was issued to PhonePe asking why action should not be taken for the lapses. The company submitted written responses and made oral submissions during a personal hearing. The RBI, however, found that the violations were sustained and moved forward with the monetary penalty.

Previous Regulatory Action

This is not the first instance of penalties against the fintech firm. In 2019, the RBI fined PhonePe ₹1 crore for non-compliance with PPI rules. Another penalty of ₹1.39 crore was imposed in 2020 for similar violations.

What PPIs Are

Prepaid Payment Instruments include digital wallets and similar services that store value for purchases of goods, services, or financial products. These instruments are regulated to protect consumer funds and maintain payment system reliability.

Read more: IPO-Bound PhonePe Launches ₹800 Crore ESOP Buyback!

Conclusion

The regulator clarified that the penalty is limited to compliance issues. All customer transactions conducted through PhonePe remain unaffected.

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