RBI imposed Monetary Penalty on PhonePe, Know Why
The Reserve Bank of India (RBI) has imposed a monetary penalty of ₹21 lakh (Rupees Twenty One Lakh only) on PhonePe Limited (formerly known as PhonePe Private Limited) for non-compliance with certain directions issued by RBI on ‘Prepaid Payment Instruments (PPIs)’.
Why Penalty was imposed?
RBI imposed monetary penalty as:
The end of the day balance in the escrow account of the company was less than the value of outstanding PPls and payments due to merchants on certain days and the company did not report shortfall in the said escrow account to RBI immediately.
RBI conducted a statutory inspection of PhonePe’s operations for the period October 2023 to December 2024. During the review, RBI found non-compliance with its PPI guidelines. PhonePe was issued a show-cause notice asking why a penalty should not be imposed. After reviewing PhonePe’s written reply, additional submissions, and personal hearing, RBI confirmed the violation.
What is this Escrow Account issue?
On certain days, the money that PhonePe kept in its escrow account was less than the total amount it owed to customers and merchants. As per RBI rules, a payment company must always keep enough funds in its escrow account to fully cover all the money in customer wallets (PPIs) and the payments that are due to merchants.
This ensures that if customers or merchants want to withdraw or settle their money, the company can immediately pay them without any risk. However, in PhonePe’s case, the balance fell short on some days, which meant that not all customer and merchant funds were fully backed by actual money in the escrow account. This creates a risk for users and is considered a serious violation of regulatory guidelines.
