The Reserve Bank of India (RBI) has once again taken regulatory action against fintech giant PhonePe, imposing a monetary penalty of ₹21 lakh for non-compliance with directions related to Prepaid Payment Instruments (PPI) norms. The central bank stated that PhonePe failed to maintain sufficient balances in its escrow account and did not report the shortfall on time, thereby violating established regulatory guidelines.
This action underscores the RBI’s strict stance on ensuring financial compliance in India’s fast-growing digital payments ecosystem.
According to the RBI, PhonePe’s end-of-day escrow account balance was found to be lower than the value of outstanding PPIs and payments due to merchants on certain days. This is a direct breach of regulatory requirements, as companies issuing PPIs are mandated to maintain sufficient funds to cover all outstanding balances at any given point.
The regulator also pointed out that PhonePe failed to immediately report the shortfall in its escrow account to the RBI. Such lapses can create systemic risks and undermine customer trust in the digital payments system.
The penalty comes after the RBI conducted a statutory inspection of PhonePe between October 2023 and December 2024. During this inspection, several supervisory findings revealed that the fintech firm did not fully comply with the directions issued by the central bank.
Following these findings, the RBI issued a show cause notice to PhonePe, asking why a penalty should not be imposed for its failure to comply. After considering the company’s response and supporting documents, the regulator decided to impose a monetary penalty of ₹21 lakh.
Under RBI regulations, all non-bank PPI issuers like PhonePe are required to follow stringent norms to safeguard customer funds. Two of the most important guidelines include:
Escrow Account Balances: At the end of each day, the balance in a company’s escrow account must never be lower than the value of outstanding PPIs and payments due to merchants.
Mandatory Reporting: Any shortfall in escrow balances must be immediately reported to the Department of Payment and Settlement Systems (DPSS) of the RBI.
These measures ensure that customers’ prepaid balances remain secure and can be redeemed at any time.
Prepaid Payment Instruments (PPIs) are digital wallets or cards that allow users to store money and make payments for goods and services. They also include facilities such as gift cards, travel wallets, and prepaid cards for financial transactions.
Popular in India’s booming fintech ecosystem, PPIs are widely used for e-commerce purchases, bill payments, subscriptions, and peer-to-peer transfers. Since these instruments handle large sums of consumer money, the RBI closely regulates them to maintain financial security and trust.
This is not the first time that PhonePe has faced regulatory action from the central bank.
In 2019, the RBI imposed a fine of ₹1 crore on PhonePe for non-compliance with PPI guidelines.
In 2020, another penalty of ₹1.39 crore was levied against the company for violating regulatory norms.
With the latest ₹21 lakh penalty in 2025, PhonePe continues to face regulatory scrutiny, highlighting the RBI’s firm approach towards ensuring compliance in the fintech space.
The RBI’s action sends a strong message to the digital payments industry in India. As the use of UPI, digital wallets, and prepaid instruments grows rapidly, the central bank has become more vigilant in enforcing compliance.
For fintech firms, this penalty acts as a reminder that strict adherence to guidelines is crucial to maintain customer trust and regulatory approval. For customers, it reinforces the assurance that the RBI is actively monitoring companies to protect their money and ensure financial stability.
The ₹21 lakh penalty on PhonePe is a clear reminder that compliance with PPI norms and escrow account regulations is non-negotiable. As India’s digital payments sector continues to expand, fintech companies will need to place greater emphasis on regulatory governance and risk management.
With multiple penalties already on record, PhonePe will likely tighten its internal processes to avoid further lapses. For the wider industry, the RBI’s firm action highlights its zero-tolerance policy towards non-compliance in the fintech space.