India’s currency in circulation has climbed to a record high of about Rs 40 lakh crore, but fresh research suggests the rise may be linked in part to policy signals that temporarily nudged some traders and consumers back towards cash.
In a report released on 16 February, SBI Research said currency in circulation (CiC) touched an all-time high of around Rs 40 lakh crore for the fortnight ended 31 January 2026, registering year-on-year growth of 11.1 per cent, compared with 5.3 per cent a year earlier.
Currency with the public (CWP), which accounts for roughly 97.6 per cent of CiC, also rose to around Rs 39 lakh crore, up 11.5 per cent year-on-year. On a year-to-date basis, CiC increased by Rs 2.76 lakh crore between April 2025 and January 2026, more than three times the incremental rise seen in the corresponding period last year.
The surge has come even as digital payments continue to expand rapidly. UPI transactions in value terms reached an all-time monthly high of about Rs 28.3 lakh crore, equivalent to roughly 70 per cent of total currency in the economy.
Yet cash as a share of GDP has declined to 11 per cent in FY26 from 14.4 per cent in FY21, indicating that digital transactions continue to deepen despite higher absolute currency levels.
SBI Research examined what it described as a “puzzle” of rising CiC alongside record UPI transactions and steady ATM withdrawals averaging about Rs 2.5 lakh crore per month.
One potential trigger, it said, was the issuance of nearly 18,000 GST notices by Karnataka’s commercial taxes department in July 2025 to small traders and vendors for UPI transactions exceeding the Rs 40 lakh registration threshold between 2022 and 2025.
Using an intensity-based Difference-in-Differences model across five states, the report found that in Karnataka, districts with higher pre-existing ATM withdrawals saw an additional increase of Rs 37 crore per month in ATM withdrawals after the GST notices, compared with lower-intensity districts. Excluding Bengaluru Urban, the additional increase was Rs 10 crore per month.
Significant effects were also observed in West Bengal and Kerala, while results for Bihar and Chhattisgarh were statistically insignificant. The findings suggest that policy signals may have had a temporary “signalling impact”, prompting some traders to rely more on cash.
Beyond regulatory developments, SBI Research cited macroeconomic and behavioural factors. An augmented money demand function estimated over FY18 to FY26 (Q3) showed that money demand is positively correlated with GDP, though the GDP coefficient was statistically insignificant, and negatively correlated with interest rates.
The report found a statistically significant inverse relationship between UPI transaction value and money demand, confirming that higher UPI usage tends to reduce currency demand. However, lower interest rates may have increased precautionary cash holdings, particularly in rural areas.
Rising precious metal prices were also cited as a factor. The report noted that households may have cashed out gold and silver holdings amid higher prices, boosting currency in circulation. Gold imports rose to USD 49.7 billion in April-December FY25 and USD 48.6 billion in April-December FY26, while silver imports climbed to USD 7.8 billion in April-December FY26.
Changes in currency composition following the withdrawal of Rs 2,000 notes in May 2023 have also altered denomination patterns. As of March 2025, Rs 500 notes accounted for 86 per cent of currency value, up 8.9 per cent from FY23. SBI Research’s analysis of currency chest data suggests this share may have risen by a further 4.4 per cent in the current fiscal year.
By contrast, the share of lower denominations has declined, aligning with data from NPCI showing that 86 per cent of person-to-merchant UPI transactions by volume are for ticket sizes below Rs 500.
The report concluded that while currency growth broadly follows economic expansion, digital payments continue to substitute for lower denominations. It cautioned that digital platforms such as UPI should not be disincentivised, as they are increasingly financing incremental GDP growth even as absolute currency levels remain elevated.
Source from: https://www.businessworld.in/article/sbi-flags-gst-notices-impact-on-cash-withdrawals-593682
