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MUMBAI: Currency in circulation, which increased sharply following the dash to cash in the aftermath of the Covid pandemic, has surprisingly recorded a decline during the Diwali week.
According to an SBI report, this is the first time in 20 years that a decline in the Diwali week has been observed with the exception of a marginal fall in 2009. This has been attributed to the surge in digital transactions, which this year has made up for the typical Diwali spike in cash withdrawals.
A drop in CIC benefits banks and the economy as it results in an increase in bank deposits which can then be lent. “A lower currency in circulation also is akin to a CRR (cash reserve ratio) cut for the banking system, as it results in less leakage of deposits and it will impact monetary transmission positively,” the report said.
A key reason for the increase in digital payments is the growing use of UPI (Unified Payments Interface). The small retail payments done through UPI/e-wallets holds 11-12% in the payment industry. The share of credit & debit cards in transaction value has remained flat, while UPI has jumped to 16% in FY22 from 0% in FY16.
“With the increase in digital transactions, this is the first time after 2002 that currency in circulation (CIC) during the Diwali week shows a decline during the Diwali week, assuming that the marginal decline in 2009 was purely because of economic slowdown,” the report said.
According to the SBI report, currency in circulation declined by Rs 7,600 crore in the Diwali week compared to an increase of Rs 44,000 crore in 2021 and Rs 43,800 crore in 2020. The lowest increase was in 2019, when it rose by Rs 580 crore.
While the currency printed has been rising consistently, the share of CIC in payment systems has been declining from 88% in FY16 to 20% in FY22, and is estimated to go down to 11.2% in FY27. Consequently, the share of digital transactions is continuously increasing from 11.3% in FY16 to 80.4% in FY22, and is expected to touch 88% in FY27.
According to an SBI report, this is the first time in 20 years that a decline in the Diwali week has been observed with the exception of a marginal fall in 2009. This has been attributed to the surge in digital transactions, which this year has made up for the typical Diwali spike in cash withdrawals.
A drop in CIC benefits banks and the economy as it results in an increase in bank deposits which can then be lent. “A lower currency in circulation also is akin to a CRR (cash reserve ratio) cut for the banking system, as it results in less leakage of deposits and it will impact monetary transmission positively,” the report said.
A key reason for the increase in digital payments is the growing use of UPI (Unified Payments Interface). The small retail payments done through UPI/e-wallets holds 11-12% in the payment industry. The share of credit & debit cards in transaction value has remained flat, while UPI has jumped to 16% in FY22 from 0% in FY16.
“With the increase in digital transactions, this is the first time after 2002 that currency in circulation (CIC) during the Diwali week shows a decline during the Diwali week, assuming that the marginal decline in 2009 was purely because of economic slowdown,” the report said.
According to the SBI report, currency in circulation declined by Rs 7,600 crore in the Diwali week compared to an increase of Rs 44,000 crore in 2021 and Rs 43,800 crore in 2020. The lowest increase was in 2019, when it rose by Rs 580 crore.
While the currency printed has been rising consistently, the share of CIC in payment systems has been declining from 88% in FY16 to 20% in FY22, and is estimated to go down to 11.2% in FY27. Consequently, the share of digital transactions is continuously increasing from 11.3% in FY16 to 80.4% in FY22, and is expected to touch 88% in FY27.
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