NEW DELHI, Feb 16: Even as digital payments scale new peaks, currency in circulation (CiC) in India has surged to an all-time high of nearly Rs 40 lakh crore, presenting what SBI Research has termed a “puzzle” of simultaneous growth in cash and UPI-led transactions.
In its latest Ecowrap report released here on Monday, SBI Research said CiC touched around Rs 40 lakh crore for the fortnight ended January 31, 2026, marking an 11.1 per cent year-on-year growth, more than double the 5.3 per cent rise recorded in the same period last year.
On a year-to-date basis (April 2025 to January 2026), CiC increased by Rs 2.76 lakh crore, compared with an incremental rise of just Rs 88,817 crore during the corresponding period of the previous year.
Currency With Public (CwP), which accounts for nearly 97.6 per cent of total currency in circulation, also climbed to a record Rs 39 lakh crore, registering 11.5 per cent annual growth.
The report noted that if current trends persist, FY26 incremental growth in the CWP could surpass the post-pandemic spike of Rs 4.6 lakh crore seen in FY21.
Paradoxically, while absolute cash in the system has expanded, the cash-to-GDP ratio has declined steadily – from 14.4 per cent in FY21 to about 11 per cent in FY26.
ATM withdrawals as a percentage of GDP have also moderated, underscoring the continued dominance of digital payments in overall economic transactions.
At the same time, UPI transactions have hit record highs. In value terms, monthly UPI transactions stood at Rs 28.3 lakh crore – nearly 70 per cent of the total currency stock in the economy.
Though transaction values saw fluctuations in recent months, the broader trajectory remains upward.
To explain the coexistence of rising cash and digital payments, SBI Research identified multiple factors.
One key trigger was the issuance of around 18,000 GST notices by the Karnataka Commercial Taxes Department in July 2025 to small traders for UPI transactions exceeding the Rs 40 lakh registration threshold between 2022 and 2025.
The report suggests this may have acted as a disincentive for some small merchants to route transactions through UPI.
Using an intensity-based Difference-in-Differences (DiD) model across five states – Karnataka, West Bengal, Kerala, Bihar and Chhattisgarh – SBI Research found that districts in Karnataka with higher pre-existing ATM usage recorded an additional Rs 37 crore increase in monthly ATM withdrawals post-July 2025 compared to low-intensity districts.
Even after excluding Bengaluru Urban, the additional rise was estimated at Rs 10 crore per month. Similar statistically significant effects were observed in West Bengal and Kerala.
Another factor is the evolving money demand dynamics. An augmented money demand function estimated by SBI Research for FY18 to FY26 (Q3) showed that while GDP growth remains positively correlated with money demand, the coefficient was statistically insignificant.
In contrast, UPI transaction value exhibited a significant negative relationship with reserve money growth, confirming that digital payments are substituting cash at the margin.
Interest rates also play a role. The model found money demand negatively correlated with the call rate, suggesting that lower interest rates may have increased precautionary and transactional demand for cash, particularly in rural areas with a consumption bias. Deposit growth has remained relatively subdued at 10.6 per cent as of end-January 2026.
The report also highlighted the impact of rising precious metal prices. Surging gold and silver prices may have prompted households to liquidate part of their holdings, thereby increasing liquidity in the form of cash.
Gold imports touched elevated levels in recent years, and researchers argue that unlike the earlier phase of “definancialisation” seen in FY10-FY13, the current trend reflects households cashing out metals to finance consumption, aided by tax cuts and improved income conditions.
Structural changes in currency composition following the withdrawal of the Rs 2,000 note in May 2023 have further reshaped cash dynamics.
As of March 2025, the share of Rs 500 notes in total currency value rose to 86 per cent, up sharply from earlier years.
SBI Research estimates that this share may have increased by another 4.4 per cent in the current fiscal (April 2025-January 2026). In contrast, smaller denominations have seen mixed trends.
The report concludes that while India appears to have managed the balance between cash and digital payments better than many advanced economies, policymakers must be cautious not to disincentivise digital modes such as UPI through abrupt enforcement actions.
The coexistence of high cash, high UPI usage and a declining cash-to-GDP ratio suggests a complex but maturing payments ecosystem.
SBI Research underscored that digital payments continue to deepen financialisation and transparency in the economy, even as cash retains its role in liquidity management and transactional convenience.
The larger policy message, it said, is clear – never disincentivise digital payments.
(UNI)
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