Unified Payments Interface (UPI) transactions will likely account for 90% of overall retail digital transaction volumes in the next five years, up from 75.6% as of March end, the Reserve Bank of India’s (RBI) monthly bulletin released on Friday said.

According to the report, a total of 9.4 billion UPI transactions were recorded in the month of May, with a 143% year-on-year (YoY) rise in successful transactions under the UPI Autopay feature, and a 23% on-year rise in new mandate registrations. Furthermore, person-to-merchant (P2M) payments have gained prominence, comprising 57% of the total transaction volume through the UPI, the RBI said.

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With the linking of RuPay credit cards to UPI, the share of P2M transactions in value terms is also anticipated to rise further, owing to a higher average ticket size of credit card purchases than UPI, the report said. With rising digital transactions and withdrawal of `2,000 bank notes, the overall currency in circulation, which forms the largest component of reserve money, decelerated to 5.3% from 8.3% a year ago, it added.

Credit, deposit growth

The state of economy report noted that scheduled commercial banks’ credit moderated to 15.4% in early May, from the peak of 17.8% recorded in October 2022, due to an unfavourable base effect and moderation in credit growth to industry. More importantly, the wedge between the growth rates of banks’ credit and deposit narrowed, with the growth in deposit mobilisation recording a 27-month high of 11.8% amidst continuing efforts by banks to bridge the funding gap.

Further, in response to the RBI’s cumulative repo rate hike of 250 basis points since May 2022, banks have revised their benchmarks for pricing of loans—the external benchmark-based lending rate (EBLR) and the marginal cost of funds-based lending rate (MCLR) — upwards. Accordingly, during May 2022 to April 2023, banks have cumulatively increased their EBLRs and their 1-year median MCLR by 250 bps and 145 bps, respectively.

“As a result, the weighted average lending rate (WALR) on fresh and outstanding rupee loans increased by 158 bps and 104 bps, respectively. On the deposit side, the weighted average domestic term deposit rate (WADTDR) on fresh and outstanding deposits increased by 233 bps and 125 bps, respectively,” it said.

On a monthly basis though, the WALR on fresh rupee loans and WADTDR on fresh deposits declined by 23 bps and 12 bps, respectively, in April 2023. The increase in the WALRs on fresh rupee loans and WADTDRs on fresh deposits was higher in the case of public sector banks relative to private banks.

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Forex reserves, FPI flows

India’s foreign exchange reserves increased by $69.2 billion since October 21, 2022 to $593.7 billion as on June 9, 2023, which is sufficient to cover 10 months of imports projected for FY23 or 97% of total external debt outstanding at end December 2022. During the calendar year 2023, India’s foreign exchange reserves increased cumulatively by $31, which is the second highest among major foreign exchange reserves holding countries, the report said.

Foreign portfolio investments, meanwhile, also remained positive for third consecutive month in May and at their highest level in the previous nine months at $5.5 billion. Equity segment dominated the FPI flows, accounting for $5 billion. Relative to comparable emerging market peers, Indian equities attracted the second highest FPI inflows during May 2023, the report said, adding that financial services, automobiles and fastmoving consumer goods (FMCGs) attracted the bulk of these investments during May.

“In June 2023 so far (up to June 16), FPIs invested $1.2 billion in Indian markets, taking net inflows in 2023-24 to $8.8 billion, as against net outflows of US 5.9 billion during FY23. India received 48.7% of total emerging markets FPI equity flows in 2023-24 (up to June 14) as against India’s weight in MSCI Emerging Market Index of 14.3% (as on May 31, 2023),” the report said.