The Reserve Bank of India (RBI) has imposed a financial penalty of Rs 21 lakh on Indian fintech giant PhonePe for non-compliance with certain conditions on Prepaid Payment Instruments (PPIs), as per an official press release dated September 12.
The RBI imposed the monetary penalty under provisions of the Payment and Settlement Systems Act, 2007, Section 30(1), read with Section 26(6).
India’s central bank conducted a statutory inspection of PhonePe from October 2023 to December 2024. Subsequently, the RBI issued a notice to the Indian fintech, asking it to show cause as to why it should not impose the financial penalty on it for failure to comply with the RBI’s directions.
Monetary Penalty Linked to Escrow Account Balance
India’s apex bank found that the monetary penalty charge against PhonePe was justified after considering the Indian fintech giant’s reply to the RBI notice, additional submissions made by PhonePe, and oral submissions during the personal hearing.
“The action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the company (PhonePe) with its customers,” said the press release.
“Further, imposition of monetary penalty is without prejudice to any other action that may be initiated by RBI against the company,” the RBI’s press release read.
India’s central bank added that on certain days, PhonePe’s end-of-the-day escrow account balance was less than the value of outstanding PPIs and payments due to merchants. Also, the Indian fintech giant did not report this escrow account shortfall to the RBI immediately.
For context, an escrow account is a temporary, third-party account that holds funds, documents, or assets during a transaction.
The intermediary securely holds the assets or funds and releases them only when the parties meet the specified conditions. Therefore, it protects all involved parties from the risk of fraud or non-performance.
Common uses of escrow accounts include holding money for property taxes and insurance in a mortgage, or securing funds in online transactions, real estate deals, and business acquisitions.
PhonePe Under The Scanner: A Brief History
Interestingly, this latest instance isn’t the only one when PhonePe has come under the scanner for its activities.
In May 2025, the Indian fintech giant launched its hyperlocal medicine delivery venture in Bengaluru, Mumbai, and Pune, namely PINCODE.
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The service offers over-the-counter and prescription-based medicines, along with a free teleconsultation option for customers without prescriptions.
However, industry bodies such as the South Chemists and Distributors Association questioned its regulatory compliance, and the move raised eyebrows over legal concerns, in particular, the apparent legitimacy of online medicine delivery services.
Elsewhere, the Indian fintech giant recently…
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