India's currency in circulation (CiC) has surged to an all-time high of nearly Rs 40 lakh crore, even as digital payments, particularly Unified Payments Interface (UPI) continue to expand at record pace.
Fresh analysis by SBI Research suggests that the spike in cash usage may partly reflect temporary policy signals that nudged certain traders and consumers back toward physical currency.
Currency in Circulation Grows 11.1% YoY
In a report released on 16 February, SBI Research said currency in circulation touched around Rs 40 lakh crore for the fortnight ended 31 January 2026, marking a year-on-year growth of 11.1%, compared with 5.3% growth a year earlier.
Currency with the public (CWP), which accounts for approximately 97.6% of total CiC, climbed to nearly Rs 39 lakh crore, up 11.5% year-on-year.
On a year-to-date basis, CiC rose by Rs 2.76 lakh crore between April 2025 and January 2026, more than three times the incremental rise recorded during the same period last year.
Digital Payments at Record High
The increase in cash circulation comes even as UPI transactions continue to scale new peaks. UPI transaction value reached an all-time monthly high of approximately Rs 28.3 lakh crore, equivalent to nearly 70% of total currency circulating in the economy.
However, despite higher absolute cash levels, cash as a percentage of GDP has declined to 11% in FY26, compared to 14.4% in FY21. This indicates that digital penetration is deepening, even as overall liquidity in the economy expands.
SBI Research described the coexistence of rising CiC, record UPI transactions, and steady ATM withdrawals (averaging Rs 2.5 lakh crore per month) as a "puzzle" requiring closer examination.
GST Notices and the "Signalling Impact"
One possible trigger identified by the report was the issuance of nearly 18,000 GST notices by Karnataka's commercial taxes department in July 2025. The notices targeted small traders and vendors whose UPI transactions exceeded the Rs 40 lakh GST registration threshold between 2022 and 2025.
Using an intensity-based Difference-in-Differences model across five states, the study found that in Karnataka, districts with higher pre-existing ATM withdrawals recorded an additional Rs 37 crore per month increase in ATM withdrawals after the GST notices, compared with lower-intensity districts.
Excluding Bengaluru Urban, the additional increase stood at Rs 10 crore per month.
Similar statistically significant effects were observed in West Bengal and Kerala, while results for Bihar and Chhattisgarh were statistically insignificant.
The findings suggest that regulatory developments may have had a temporary signalling impact, prompting some traders to rely more heavily on cash transactions.
Macroeconomic and Behavioural Drivers
Beyond policy signals, SBI Research highlighted broader macroeconomic and behavioural factors influencing money demand.
An augmented money demand function estimated from FY18 to FY26 (Q3) showed:
- Positive correlation between money demand and GDP (though statistically insignificant)
- Negative correlation between money demand and interest rates
- A statistically significant inverse relationship between UPI transaction value and money demand
This confirms that higher UPI usage structurally reduces currency demand. However, lower interest rates may have encouraged precautionary cash holdings, especially in rural areas.
Gold, Silver and Cash Holdings
Rising precious metal prices may also have contributed to elevated currency levels. The report noted that households could have liquidated gold and silver holdings amid higher prices, boosting cash availability.
Gold imports stood at USD 49.7 billion in April-December FY25 and USD 48.6 billion in April-December FY26, while silver imports rose to USD 7.8 billion during April–December FY26.
Shift in Currency Composition After Rs 2,000 Note Withdrawal
Changes in denomination patterns following the May 2023 withdrawal of Rs 2,000 notes have also reshaped currency composition.
As of March 2025, Rs 500 notes accounted for 86% of total currency value, up 8.9% from FY23 levels. SBI Research's currency chest analysis suggests this share may have risen by a further 4.4% in the current fiscal year.
Meanwhile, lower denominations have declined in share consistent with NPCI data showing that 86% of person-to-merchant UPI transactions by volume are below Rs 500 in ticket size.
Digital Payments Still Powering Incremental GDP
The report concludes that while currency growth broadly tracks economic expansion, digital platforms, particularly UPI continue to substitute lower denominations and finance incremental GDP growth.
SBI Research cautioned policymakers against disincentivising digital platforms, noting that even with elevated absolute cash levels, India's structural transition toward digital payments remains firmly intact.
CAclubindia
