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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)
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