India’s payments ecosystem is evolving into a dual-track system where cash and digital transactions are growing side by side, according to a recent research report by SBI.
The report points out that currency in circulation (CiC) rose sharply by 11.9% in FY26, reaching a record Rs 41.6 trillion—its fastest growth since the period following demonetisation in 2016. At the same time, digital payments continue to surge, with UPI transaction values climbing 20.6% to Rs 314 trillion and volumes increasing 30% to 241.6 billion transactions.
SBI describes this phenomenon as a “cash paradox,” where both cash and digital modes remain essential and increasingly complementary, despite some overlap in their use cases. Small-value transactions, in particular, are now dominated by UPI, accounting for around 86% of person-to-merchant (P2M) and 60% of person-to-person (P2P) payments below Rs 500. Cash, however, continues to play a vital role in informal transactions and as a store of precautionary liquidity.
The report attributes the rise in cash usage largely to India’s economic growth. Between FY12 and FY26, per capita GDP grew at a compound annual rate of 9.4%, while per capita CiC rose slightly slower at 9.0%. This narrow gap suggests that digital payments are gradually absorbing part of the transaction demand.
A notable trend highlighted is the widening gap between currency held and ATM withdrawals, which indicates a growing preference for holding cash as a precaution. This gap increased significantly from Rs 1,804 per capita in FY24 to Rs 9,127 in FY26. SBI links this behavior to heightened uncertainty and amplified risk perceptions, partly influenced by social media.
In terms of currency composition, higher denomination notes continue to dominate, with Rs 500 notes accounting for about 86% of total value. However, there has been a noticeable increase in the circulation of smaller denominations. The share of Rs 100 notes rose from 6.2% in March 2025 to 8.2% in March 2026, following regulatory efforts to improve their availability.
Meanwhile, India’s Central Bank Digital Currency (CBDC) remains in its early stages. With circulation at approximately Rs 1,016 crore, it represents just 0.02% of total CiC, underscoring the need for greater awareness, improved usability, and stronger ecosystem partnerships.
Overall, SBI Research concludes that cash remains deeply embedded in India’s financial system even as digital payments rapidly expand. Both are expected to grow together as the economy continues to formalise.
(With inputs from ANI)