The spectacular jump in UPI (unified payments interface) transactions over the last few years may be one of the reasons for the growth in banking system’s low-cost current account, savings account (CASA) deposits, going by Reserve Bank of India (RBI) data.

CASA deposits of scheduled commercial banks increased from 41.99 per cent of total deposits as at March-end 2019 to 45.15 per cent as at March-end 2022 even as the value of UPI transactions surged almost 10 times from ₹8,76,703 crore in FY19 to ₹84,15,900 crore in FY22.

Charging UPI transactions?

Industry experts say bank customers are maintaining higher balances in accounts linked to UPI, which is a retail funds transfer as well as a merchant payment system, due to convenience of transacting via mobile app.

These balances are a cheap source of funds for banks as, on average, they pay only 2.70-3.00 per cent interest on savings bank deposits and no interest is paid on current accounts.

So, in the context of the RBI’s recent discussion paper (on charges in payments systems), which sought stakeholders feedback on whether UPI transactions should be charged, experts are of the view that low-cost CASA funds coupled with reimbursement of charges by the Government for RuPay debit card and UPI transactions could defray some of the expenses incurred by Banks on the technology front.

This benefit could be passed on by Banks to other UPI ecosystem participants such as the UPI app provider (used by the beneficiary) and the National Payments Corporation of India, which owns and operates UPI, among others.

Long way to go

Mandar Agashe, Founder and Managing Director, Sarvatra Technologies, said: “Right now, the government’s stand is very clear that there should be no charges on UPI transaction. Not even 10-12 per cent of the payments have been digitised. So, there is still a long way to go.

“I think, a payment system such as UPI requires a completely new financial/ commercial model, which will only emerge with time.”

He opined that the model could be based on float (money) because the more the UPI transactions grow, the more money is kept by account holders.

“For example, earlier, UPI users used to keep only such amount, say ₹2,000, that is required for doing a transaction. But now many transactions are being put through UPI.

“So, users are ensuring that they have enough balances in their accounts linked to the UPI app. Hence, the balances are also growing very fast in those accounts linked to UPI,” Agashe said.

Long-term decision

Similarly, merchants are receiving money/ cash flow in their accounts (current account) via UPI. 

Madan Sabnavis, Chief Economist, Bank of Baroda, said: “Banks are benefitting from CASA deposits because the float is there and demand deposits are zero cost. On savings bank deposit, they are still paying 2.75 per cent, or thereabouts.

“But the essential thing is that people are not saving….they are not taking long-term saving decision as of now and retaining the investible surplus in savings bank deposit, which could go towards consumption.”