A new SBI Research report released on Friday, April 25, 2025, has concluded that both cash and digital payments remain indispensable for Indian households, complementing rather than replacing each other — while simultaneously sounding an urgent call to accelerate adoption of India's Central Bank Digital Currency (CBDC), the e-Rupee, whose total circulation stands at a modest Rs 1,016 crore as of March 2025. The report underscores that despite the explosive growth of UPI (Unified Payments Interface), Indians continue to hold cash for emergencies and informal transactions, pointing to a behavioural pattern that no digital push has yet been able to fully displace.

Cash vs Digital: A Complementary Relationship, Not a Competition

The SBI Research report highlights a concept economists call 'marginal substitutability' — meaning while a household may rely on UPI for routine retail and small-ticket payments, it simultaneously retains physical cash for unforeseen emergencies or informal economic activity. This dual behaviour reflects the structural reality of India's economy, where a significant portion of transactions — particularly in rural and semi-urban areas — still operates outside the formal digital ecosystem.

The report draws attention to the relationship between per capita Currency in Circulation (CiC) and per capita GDP. India's per capita GDP (at current prices) surged from Rs 71,609 in FY12 to Rs 2,51,393 in FY26, registering a CAGR of 9.4 per cent. Over the same period, per capita CiC rose from Rs 8,762 to Rs 29,324, a CAGR of 9.0 per cent.

The 0.4 per cent gap between CiC CAGR and GDP CAGR is, according to the report, nearly equivalent to the per capita UPI transaction value of Rs 1,301 in FY26 — a finding that suggests digital payments are beginning to chip away at cash dependency, albeit marginally.

Precautionary Cash Hoarding on the Rise

One of the most striking findings in the SBI Research report is the widening gap between per capita CiC and ATM cash withdrawals. While ATM withdrawals primarily reflect transactional cash use, CiC captures both transactional and precautionary cash holdings.

This gap has ballooned from Rs 1,804 in FY24 to a staggering Rs 9,127 in FY26 — a nearly five-fold increase in just two years. The report attributes this sharp rise largely to a precautionary motive, with individuals stockpiling cash amid heightened geopolitical uncertainty. The report draws a direct parallel with behaviour observed during the Russia-Ukraine war, suggesting that the ongoing global conflict environment is driving similar cash-hoarding instincts among Indian households.

This is a critical second-order consequence that mainstream economic commentary often overlooks: digital payment growth does not automatically translate into reduced cash hoarding — especially when citizens perceive systemic risk or geopolitical instability.

Rs 500 Note Dominance and RBI's Corrective Push

The report also flags a deeply skewed denomination structure in India's currency ecosystem. The Rs 500 note accounted for a dominant 86 per cent share of total currency value in circulation as of March 2025, a sharp rise from 77 per cent in March 2023. This concentration raises concerns about accessibility and liquidity at the grassroots level.

In response, the Reserve Bank of India (RBI) has directed all banks and White Label ATM Operators (WLAOs) to ensure their ATMs regularly dispense Rs 100 and Rs 200 denomination banknotes — a move aimed at democratising cash access for lower-income and rural populations who rely on smaller denominations for daily transactions.

Encouragingly, the report notes that the share of the Rs 100 note has increased from 6.2 per cent in March 2025 to 8.2 per cent in March 2026, suggesting that the RBI's directive is beginning to yield results, even as the Rs 500 note remains entrenched at approximately 86 per cent.

CBDC e-Rupee: Potential Unfulfilled, Urgent Action Needed

India's Central Bank Digital Currency (CBDC), the e-Rupee, was launched with considerable fanfare as a landmark step in modernising the nation's monetary infrastructure. However, with total circulation at just Rs 1,016 crore as of March 2025, the e-Rupee remains a marginal player in India's payments landscape — a fraction of the trillions processed daily through UPI.

The SBI Research report calls for a multi-pronged strategy to scale CBDC adoption, including enhanced public awareness campaigns, improved usability of the e-Rupee platform, and strategic partnerships with fintech applications. The integration of CBDC with popular platforms like PhonePe, Google Pay, and Paytm could be the game-changer that bridges the adoption gap — a move that would also give the RBI and the government unprecedented real-time visibility into monetary flows.

As India navigates an increasingly complex global economic environment — marked by geopolitical tensions, inflationary pressures, and a rapidly evolving fintech landscape — the findings of this SBI Research report serve as a timely reminder that the future of India's monetary system lies not in choosing between cash and digital, but in building a resilient, inclusive ecosystem where both coexist and the e-Rupee finally realises its transformative potential. The RBI's next monetary policy review and the government's upcoming fintech policy framework will be closely watched for concrete steps in this direction.