The Reserve Bank of India (RBI) recently imposed a penalty of ₹21 lakh on PhonePe for breaking certain rules related to digital wallets (also called PPIs – Prepaid Payment Instruments).
What were the exact violations or mistakes committed by PhonePe?
PhonePe is supposed to keep enough money in a special bank account (called an escrow account) to make sure it can cover all the money in users’ wallets and pay the merchants on time. According to the RBI PhonePe did not maintain adequate funds in the escrow account at certain times. More importantly, it failed to report these shortfalls to the RBI, which is a compliance breach and this is serious because it could put users’ money at risk.
As per RBI rules, if there’s ever a shortage in the escrow account, PhonePe must inform the RBI immediately and PhonePe failed to do this. The penalty was issued under the PPI Master Directions, which lay out the rules for wallet companies and PPI issuers.
RBI conducted a detailed inspection of PhonePe between October 2023 and December 2024. Based on what they found, RBI sent a notice asking why PhonePe shouldn’t be fined.
Why maintaining adequate money in the escrow account is important?
RBI wants to protect users and merchants. If there isn’t enough money in the escrow account, users or merchants might not get their money back if something goes wrong. That’s why it’s mandatory for companies like PhonePe to maintain proper balances and report any shortfall right away. RBI monitors these platforms strictly, and penalties help enforce compliance. Here money is not immediately at risk, but such lapses raise concerns about internal checks at the company.
This is not the first time PhonePe has been fined; it has happened before as well. In 2019 RBI fined PhonePe ₹1 crore for a compliance breach. In 2020 another fine of ₹1.39 crore was imposed. And in 2025 fined₹21 lakh for escrow reporting failure. This is their third compliance-related penalty since 2019. It reflects lapses in internal risk and compliance systems.
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