The Reserve Bank of India (RBI) has reportedly decided to carry out a trial by depositing reimbursement allowances into its officers’ digital currency wallets.
According to a local media report, the central bank has chosen to deposit a portion of the allowances it reimburses into the central bank digital currency (CBDC) wallets of its officials. The move is expected to push popularity for the digital rupee which has been struggling to gain mass adoption in the face of stiff competition from digital payment applications.
According to an International Monetary Fund (IMF) report, since December 2023, several banks in India began disbursing employee benefits using e-rupee wallets instead of salary accounts, helping the RBI reach its target of one million daily transactions. This was part of efforts to boost e-rupee adoption, following the RBI’s encouragement for banks to use CBDC for compensation.
By December 2023, the central bank had reached one million daily transactions for its retail CBDC pilot, boosted by user incentives and bank employees’ salaries paid using the e-rupee. However, by June, daily transactions had dropped to around 100,000, according to a Reuters report.
In March 2024, former RBI Governor Shaktikanta Das said that India had about 4.3 million retail CBDC users, while an additional 400,000 merchants were also using the e-rupee.
“CBDC is (an) area where RBI among the central banks is a pioneer. Almost every central bank is talking about, or they’re experimenting, or they’re discussing about CBDC. But [the] actual launching of a pilot project has been done by very few. As I see it, CBDC has a huge potential in the future. In fact, it is the future of currency,” Das said in December.
In November, Das said that the RBI is still experimenting with new e-rupee use cases but has not set any target date for the full-fledged launch of the digital currency.
According to the IMF report, in India, the digital rupee pilot has yet to achieve mainstream adoption, especially in the presence of the widely adopted Unified Payments Interface (UPI). While India struggles to raise public support for its e-rupee, UPI has seen a tenfold increase in volume over the past four years, from 12.5 billion transactions in 2019-2020 to 131 billion transactions in 2023-2024, or 80% of all digital payment volumes.
“As of May 2024, the e-rupee in circulation stood at 3.23 billion rupees, up from 1 billion rupees in December 2023. However, this remains a small fraction of the 35.4 trillion rupees in banknotes currently in circulation,” the IMF report stated.
Linking the e-rupee to UPI has expanded its use, the IMF report said.
“While the number of [CBDC] transactions have reached a high of 1 million a day, we still see preference for UPI among the retail users. We, of course, hope that this will change going forward,” Das said in May 2024.
“We have leveraged the existing merchant infrastructure on the UPI to facilitate CBDC transactions. We have also enabled interoperability of CBDC with UPI,” Das added.
RBI started its first digital rupee pilot in the wholesale segment on November 1, 2022, to settle secondary market transactions in government securities. It started the pilot with nine banks—State Bank of India (NASDAQ: SBKFF), Bank of Baroda, Union Bank of India, HDFC Bank (NASDAQ: HDB), ICICI Bank (NASDAQ: IBN), Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC (NASDAQ: HSBC).
The retail digital rupee pilot started on December 1, 2022, and users were able to transact through a digital wallet offered by the participating banks and stored on mobile phones or devices.
RBI’s Innovation Hub plans digital no-collateral loan trial for contractual workers
The RBI Innovation Hub (RBIH), a wholly owned subsidiary of the central bank, has reportedly teamed up with fintech firm VIVIFI India Finance for a pilot project to provide digital unsecured loans to freelance or contractual workers, such as cab and food delivery drivers.
According to a local media report, the initiative leverages alternative data for loan underwriting and seeks to bring contractual workers into formal banking systems. Future plans also involve linking the system to the Unified Lending Interface (ULI).
The ULI was designed and developed by the RBIH. Launched as a pilot program in August 2023, RBI’s ULI is expected to completely transform credit delivery in the country. It is a technology platform built to facilitate access to authenticated data from various sources through a standardized Application Programming Interface (API) to which all lenders can connect seamlessly through a plug-and-play model.
Founded in 2016, VIVIFI India Finance Private Limited is a non-banking finance company (NBFC) registered with the RBI. Last year, the fintech firm raised $75 million in Series B funding through a combination of debt and equity from US-based investors.
Watch: India is going to be the frontrunner in digitalization
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