MDR unlikely to trigger shift back to cash: RBI Deputy Governor S C Murmu

The introduction of merchant discount rate (MDR) on Unified Payments Interface (UPI) is unlikely to trigger a shift back to cash transactions, an apprehension raised in some quarters, said RBI Deputy Governor S C Murmu. MDR will help the payments ecosystem recover its costs, he said, adding that while digital payments have increasingly replaced cash as a mode of transaction, cash continues to retain its role as a store of value.

Speaking at an event organised by the Bengal Chamber of Commerce and Industry in Kolkata, Murmu said, “I don't think this will have any impact, unlike some voices about whether cash will go up because of this MDR on UPI.”


Earlier this week, the National Payments Corporation of India (NPCI), which operates UPI, announced that an MDR of 0.4 per cent would apply to P2M UPI transactions above ₹2,000. The charge will be capped at ₹300 for transactions of ₹75,000 and above. P2M transactions of up to ₹2,000 will remain free of MDR, as will peer-to-peer (P2P) transactions such as transfers between family and friends. MDR on UPI kicks in from October 15.

While the payments ecosystem has clarified that the charge will be levied on merchants and UPI payments will continue to remain free for customers, concerns have emerged that merchants may eventually pass on the cost to consumers. Any such pass-through could, in turn, encourage some consumers to revert to cash for large-value transactions.

In a statement, the RBI has said P2M UPI transactions below ₹2,000 will continue to remain free for merchants, while MDR may be levied on merchants for P2M transactions.

“It will help UPI in continuing to scale, innovate and serve consumers and businesses across the country. A fair and appropriate distribution of MDR across ecosystem participants will support continued investment in technology, infrastructure and acceptance networks. This, in turn, can enable wider UPI acceptance, deepen the customer base and support sustained growth in transaction volumes”, the central bank has said, adding that the RBI remains committed to ensuring that UPI continues to be safe, seamless, affordable, and accessible, while supporting the long-term sustainability and growth of India’s world-class digital payments ecosystem.

Murmu also touched upon the cash paradox — the fact that while digital payments are growing rapidly, currency in circulation is also rising at a healthy pace, even though the two would theoretically be expected to have an inverse relationship. “In the previous decade, (while the) adoption of digital payments in India has been revolutionary to say the least, yet cash in circulation has not declined, especially in rural and semi-urban areas, among low-income groups, older populations, and small businesses,” Murmu said while speaking at a focus group discussion on global cash management organised by Bank Indonesia in Jakarta on August 13.

On Friday, Murmu highlighted that although cash has been replaced by digital payments for transactions, it still remains quite significant as a “store of value”.

According to Reserve Bank of India (RBI) data, currency in circulation (CiC) stood at ₹42.86 trillion at the end of August 2026, up from ₹41.66 trillion at the end of 2025-26 (FY26) and ₹37.24 trillion a year earlier. CiC has been growing at a double-digit pace since December last year, with year-on-year growth at 12.5 per cent as of August-end, compared with 11.84 per cent in FY26, 6.07 per cent in FY25 and 3.93 per cent in FY24. The acceleration in cash demand, even as digital payments continue to expand, highlights the challenge for the RBI in forecasting currency demand. As a proportion of gross domestic product (GDP), however, CiC has been on a declining trend since FY21, when it peaked at 14.4 per cent. After declining for four consecutive years, the ratio saw a slight uptick to 12.1 per cent in FY26.

The surge in cash comes amid steady growth in digital transactions. UPI transaction volume grew 22.5 per cent year-on-year in August, while growth in value terms was nearly 20 per cent.

On the RBI's recent regulatory changes, Murmu said the central bank had issued more than 600 draft and final amendment circulars in the last one year. However, Murmu said the number should not be seen as a measure of the regulatory burden on individual entities, as the RBI had reorganised its regulations across different categories of regulated entities.