Currency in circulation jumps even as UPI transactions surge: SBI Research

Record Surge in Currency Circulation Amid Digital Payment Boom

India's economy is witnessing a striking paradox. Currency in circulation has soared to an unprecedented Rs 40 lakh crore by the end of January 2026, marking an 11% jump from the previous year. This milestone comes even as digital payments, particularly through the Unified Payments Interface (UPI), are shattering records with monthly transaction values exceeding Rs 28.3 lakh crore. That's nearly 70% of the total cash floating around in the system. Experts at SBI Research point out that this growth persists despite the cash-to-GDP ratio actually dipping, suggesting a complex interplay between old habits and new technologies.

What makes this trend even more intriguing is the behavior of everyday Indians. While UPI dominates small purchases like tea or snacks at roadside stalls, larger transactions still lean heavily on cash. Currency with the public, the amount actually held by households and businesses, stands at about Rs 39 lakh crore—almost 97.6% of the total circulation. This means vast sums are tucked away in wallets, drawers, and safes across the country, defying the march toward a cashless society.

Key Drivers Behind the Cash Resurgence

Several factors are fueling this unexpected rise in cash usage. Precautionary demand plays a big role, with people holding onto notes amid economic uncertainties. Shifts in GST-related behaviors have also contributed, as some businesses adjust to tax scrutiny. Higher ATM withdrawals in certain states, like Karnataka, tell a telling story. There, small merchants faced notices based on UPI records last year, prompting many to shun digital payments and demand cash instead. Monthly ATM pulls in the state spiked to Rs 37 crore as a result.

The withdrawal of Rs 2,000 notes adds another layer. Announced by the Reserve Bank of India in May 2023, with Rs 3.56 lakh crore in play, a whopping 98.42% have been returned by January 2026. This has reshaped the currency mix dramatically. The share of Rs 500 notes has climbed 8.9%, becoming the go-to higher denomination. Meanwhile, smaller Rs 50, Rs 100, and Rs 200 notes are losing ground, perfectly mirroring the UPI surge in low-value transactions—86% of person-to-merchant UPI payments are under Rs 500.

"The declining share of small denomination notes is corroborated by UPI data, where low-value transactions dominate, yet overall currency demand remains robust due to precautionary hoarding and regional cash preferences," noted the SBI Research report.

Implications for India's Payment Landscape

This dual track of cash and digital growth raises questions about India's financial future. UPI's convenience has transformed daily life, from street vendors to urban cafes, but cash retains a trusted spot for bigger buys, emergencies, or areas with spotty internet. Policymakers face a delicate balance: encouraging digital adoption without alienating cash-dependent sectors. SBI Research warns against disincentivizing UPI, as it complements rather than replaces cash. The higher concentration in Rs 500 notes signals a stabilizing shift post-Rs 2,000 withdrawal, potentially boosting bank deposits and consumption if trends hold.

Economists puzzle over this "economic paradox," where digital records break monthly highs yet cash piles up. It reflects deep-rooted trust in physical money, especially among small traders wary of digital trails leading to tax probes. As UPI scales, its average ticket size for small payments underscores why low-denomination notes fade, but total circulation balloons on broader demand drivers. This coexistence could signal a mature economy blending both worlds effectively.

In wrapping up, India's currency in circulation reaching Rs 40 lakh crore despite UPI's dominance highlights resilient cash preferences driven by precaution, policy anxieties, and denomination shifts. The Rs 500 note's rise post-Rs 2,000 withdrawal, alongside digital gains in small transactions, paints a nuanced picture of payment evolution, urging balanced policy approaches.