NewKerala.com

India's "Cash Paradox": Surge in Both Cash and Digital Payments

India's payment landscape shows a "cash paradox" with both cash and digital payments surging simultaneously, according to an SBI report. Currency in circulation hit an all-time high of Rs 41.6 trillion in FY26, while UPI transactions also scaled new peaks. The report attributes rising cash usage to economic expansion and heightened precautionary motives amid uncertainty. It notes that cash and digital payments are complementary, with UPI dominating small transactions and cash serving informal needs.

Key Points: India's Cash Paradox: Digital & Cash Usage Surge

  • Currency in circulation hits record Rs 41.6 trillion, up 11.9%
  • UPI transaction value rises 20.6% to Rs 314 trillion
  • Precautionary cash demand surges five-fold
  • Small-ticket transactions dominated by UPI
3 min read

India sees parallel surge in cash and digital payments, SBI flags "cash paradox"

SBI report highlights a "cash paradox" as India sees record-high currency circulation and UPI transactions grow simultaneously, driven by economic expansion and precautionary motives.

"cash is still the king... though UPI is gaining traction - SBI Research"

New Delhi, April 24

Despite increased use of UPI and other digital modes of financial transactions, India's payment landscape is increasingly reflecting a hybrid equilibrium, where cash and digital payments are expanding simultaneously, according to a research report by SBI.

The report highlights that currency in circulation (CiC) surged 11.9% in FY26 to an all-time high of Rs 41.6 trillion, marking "the highest growth since the post-demonetisation in 2016". At the same time, digital payments via UPI also scaled new peaks, with transaction value rising 20.6% to Rs 314 trillion and volumes jumping 30% to 241.6 billion.

Calling this trend a "cash paradox", the report notes that both cash and digital are indispensable for India and complement each other, even as some degree of substitutability exists. It adds that small-ticket transactions are increasingly dominated by UPI, with "~86% of P2M and ~60% of P2P transactions below Rs 500", while cash continues to serve informal and precautionary needs.

SBI research underlines that India's economic expansion is a key driver behind rising cash usage in absolute terms. While per capita GDP grew at a CAGR of 9.4% between FY12 and FY26, per capita CiC increased at 9.0%, indicating that "the per-capita CAGR of CiC is still lower than the GDP". The marginal gap is nearly equivalent to UPI, suggesting digital payments are gradually absorbing transaction demand.

A significant finding of the report is the widening gap between currency holding and ATM withdrawals, which signals a rising precautionary motive. The difference between per capita CiC and ATM withdrawals jumped from Rs 1,804 in FY24 to Rs 9,127 in FY26, a five-fold increase. "We believe this gap is primarily because of the precautionary motive of using cash by individuals", the report states, attributing it partly to "heightened uncertainty" and amplified perceptions through social media.

On denomination trends, the report notes a skew towards higher-value notes, with the Rs 500 denomination accounting for around 86% of total value. However, following RBI's directive to improve availability of smaller notes, the share of Rs 100 notes has increased from 6.2% in March 2025 to 8.2% in March 2026, indicating faster circulation of lower denominations.

Meanwhile, India's Central Bank Digital Currency (CBDC) remains at a nascent stage. With the circulation at around Rs 1,016 crore, it constitutes only 0.02% of the total CiC, highlighting the need for further efforts in awareness, usability, and strategic partnerships.

SBI Research emphasises that "cash is still the king... though UPI is gaining traction", and both modes are likely to grow in tandem as the economy formalises further.

- ANI

Share this article:

Reader Comments

A
Ananya R
This is fascinating! I've been using UPI for almost everything – from chai at the roadside stall to paying the maid – but I always keep some cash at home for when the internet goes down or for the local milkman who doesn't have a phone. It's like we're living in two worlds: one digital and one analog. The growth in both makes sense when you think about India's expanding economy. More people are earning, so more transactions happen overall. But shouldn't the government work on making smaller notes more available? The Rs 100 note share increasing is good news, but many poor people need Rs 10 and Rs 20 notes for daily needs, not just Rs 500s. That's where the real friction is.
R
Rohit P
Great analysis by SBI, but I wish they had also discussed the black money angle more. While UPI is transparent, cash allows many transactions to go unrecorded in the informal economy. I live in Delhi and see how real estate agents, wedding planners, and even local repair guys often prefer cash to avoid GST or income tax. This "hybrid equilibrium" might be hiding the fact that a large part of the economy is still outside the formal tax net. The rising CiC could partly be due to people hoarding cash for unaccounted deals, especially ahead of elections or major purchases. Until digital payments become mandatory for high-value transactions (like property or car purchases), cash will remain the go-to for all the wrong reasons. Just my two paise. 🙏
M
Michael C
Interesting report. As someone who moved from the UK to Bangalore for work, I initially found it strange how much cash people use here. Back home, I rarely carried cash at all. But now I understand – the infrastructure isn't always reliable, and cash provides a safety net. The precautionary motive statistic (gap from Rs 1,804 to Rs 9,127 in two years) is alarming – it suggests a lot of uncertainty. Is it due to inflation fears? Job insecurity? Or simply more people saving physical cash because they don't trust banks after some recent crises? The CBDC piece is also interesting – 0.02% of CiC is tiny. Maybe

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

Leave a Comment

Minimum 50 characters 0/50