RBI Governor Sanjay Malhotra has raised pressing concerns about the financial sustainability of India’s Unified Payments Interface (UPI), cautioning that the current model of zero-charge transactions may not be viable indefinitely.
While digital payments continue to be promoted as secure, accessible, and efficient, Malhotra underlined the need for the payment infrastructure to eventually become self-sustaining.
Speaking at a recent media event, Malhotra stated, “Payments and money are a lifeline. We need a universally efficient system. As of now, there are no charges. The government is subsidising various players such as banks and other stakeholders in the UPI payments system. Obviously, some costs have to be paid.”
The explosive rise in UPI usage has brought this issue to the forefront.
In just two years, the number of daily transactions has doubled from 31 crore to over 60 crore. This growth has added significant pressure to backend systems maintained by banks, payment service providers, and the National Payments Corporation of India (NPCI).
Despite the scale, there is currently no direct revenue generated from UPI transactions, owing to the government’s policy of a zero merchant discount rate (MDR). Industry stakeholders have repeatedly raised concerns over the long-term viability of this model.
Malhotra reiterated that the government has so far borne the burden of supporting this infrastructure, but signaled that this cannot continue indefinitely. “Costs will have to be paid. Someone will have to bear the cost,” he said. Acknowledging the importance of maintaining free access for users for now, he added, “Any important infrastructure must bear fruits… its cost should be paid whether collectively or by the user.”
Meanwhile, the Governor also addressed the monetary policy outlook.
While reaffirming the central bank’s neutral stance, he left room for possible lending rate adjustments based on evolving economic indicators, especially inflation trends. “We have the flexibility to move up, down, or pause,” Malhotra said. “The stance of neutral allows us that flexibility… A rate cut is not ruled out.”
India’s inflation is currently at 2.1%, significantly below the RBI’s upper tolerance limit of 6%. However, projections for the January–March quarter still place inflation at 4.4%. Malhotra emphasised that monetary policy decisions will depend on the projected inflation path over the next 6 to 12 months.
Amid slow private investment and moderate credit growth, he noted that earlier policy actions are beginning to yield results. “In just two months, the 50 bps rate cut has been fully transmitted to new loans,” he said, adding that while credit growth has moderated compared to last year, it remains above the decade-long average.
Responding to views that the central bank has exhausted its options, Malhotra asserted that the RBI retains multiple policy tools to respond to economic shifts.
On the global front, he acknowledged the growing uncertainty, including U.S. tariffs and financial market volatility, and stressed the RBI’s focus on forward-looking and calibrated decisions to minimise instability.
Malhotra also touched on India’s approach to digital currencies, stating that the stance remains cautious. He noted that a committee with RBI representation is currently studying the implications, even as countries like the U.S. have taken legislative steps such as the Genius Act to counter Central Bank Digital Currencies (CBDCs).