Meetup at Lonavala: RBI holds discussions with banks and fintechs on ways to popularise CBDC

RBI holds CBDC meeting with fintechs and banks

The Reserve Bank of India has met with a few bankers and fintech executives to understand how they can ensure consumer interest in adopting the central bank digital currency (CBDC), according to sources who attended the meeting.

The meeting took place over the weekend at Lonavala, a hill station close to Pune and Mumbai.

Moneycontrol has learnt that the meeting saw participation from the chief digital or technology officers from CBDC Cohort one banks – SBI, ICICI Bank, Yes Bank and the IDFC First Bank, the National Payments Corporation of India (NPCI) Managing Director Dilip Asbe, Cred Founder Kunal Shah, PhonePe co-Founder Rahul Chari, executives from Google Pay, Amazon Pay and central bank officials.

Emails and Messages sent to RBI, NPCI and some of the fintechs did not elicit any response at the time of publishing the story, which will be updated if we hear from the organisations.

“RBI wanted inputs from banks and fintechs on how to popularise CBDC. The regulator wants to understand what can be done to address the lack of interest from the public,” said a person who participated in the discussion.

RBI and NPCI acknowledge that fintechs had a big role in popularising the mobile payments platform unified payments interface or UPI.

Not all banks were invited as some of them participated at a CBDC meeting with Finance Ministers during the G20 event, said a digital head of a large private sector bank, which was not invited to the meeting. “RBI wanted a new set of ideas from different bankers this time,” the person added.

“This is being pushed by the Finance Ministry and they think it is a good idea. Hence the regulator is also trying to popularise this despite low interest from the public,” said another senior banker who did not wish to be identified, who has worked on the CBDC platform.

The declining trend

The meeting happens against the backdrop of declining usage of CBDC at the wholesale level and retail level. Banks like SBI have been promoting CBDC through its popular mobile app YONO, trying to enlist more customers in the last six months with push notifications.

The CBDC has seen its transaction volumes go down after crossing 10 lakh in December 2023, according to Reserve Bank of India Deputy Governor, T Rabi Sankar. CBDC transactions went up briefly last year once it was made interoperable with UPI during August-September by multiple banks. But the volumes started coming down later in the year and continued to fall.

“After that, it is seen that volumes are not that much and it has decreased, but one thing we are able to see is that volumes have shifted from P2P to P2M because more merchants are available,” Rabi Shankar said at the RBI press conference after the Monetary Policy Committee meeting in April.

The overall number of transactions has touched 2.2 crore since the launch of the CBDC pilot on December 1, 2022,  while the the number of participants stood at 50 lakh.

The origin and measures to popularise CBDC

The idea of CBDC was conceived after decentralised digital currencies or cryptocurrencies gained prominence with a lot of public participation and investment in the space. CBDC also deploys the distributed ledger technology of cryptocurrencies and this ensures the security of the transactions and unlike paper currency, it cannot be forged.

RBI has opposed public investment in crypto and has maintained that those will never be accepted as legal tender in the country and this stance has found strong support from the government as well. The advantage of CBDC is that it has legal parity with the paper currency and 1 CBDC is equal to 1 rupee.

CBDC was launched as a counter to crypto to attract users who preferred digital currencies and their flexibility as opposed to paper currency. Digital currency is expected to reduce the cost of printing, managing and distributing the paper currency.

According to RBI’s annual reports, the regulator spends around Rs 5,000 crore every year to print money and moving a lot of high-value transactions to CBDC will substantially reduce this cost.

RBI is introducing programmability for CBDC with private sector lender IndusInd Bank doing the first pilot project executing transactions to pay farmers for carbon credits. The bank is providing a platform for 50 farmers in Maharashtra to exchange their carbon credits for CBDCs. Earlier, the farmers could only exchange their credits for fiat rupees.

“One more thing which we have announced is offline users of CBDC; these offline users in closed groups within banks, it has been tested and it has been developed and testing is going on and once it gets settled then we will open that,” said Rabi Shankar at the RBI MPC press conference.

Advantage over UPI

While digital transactions have reduced the usage of paper money to some extent, the currency in circulation has been increasing and these digital transactions have to be backed by currency money printed by RBI.

UPI could reduce the amount of paper money kept by the public, but will not reduce the currency in circulation. Hence, the government and the regulator have been pushing for popularising CBDC.

According to a fintech consultant, if the regulator focussed on wholesale and corporate payments, CBDC might succeed.

“For most retail customers, CBDC is like maintaining another wallet even though it is interoperable with bank accounts and UPI. Customers in India seem to have a preference for making payments directly from the bank account as seen from the success of UPI,” the person added.

According to RBI, person-to-merchant transactions are growing while person-to-person payments are declining. But even the overall wholesale CBDC payments are declining. It is not clear why this is happening since there are tangible benefits to using CBDC in the wholesale segment.

“There has to be some sort of incentive structure to accelerate the adoption in the initial stages, like in the form of lower interchange or commission,” the consultant added.

The wholesale pilot of the Central Bank Digital Currency (CBDC) started by the Reserve Bank of India (RBI) last year is seen as losing steam as the number of trades and settlement volumes has constantly fallen over the last few months, according to data compiled by Moneycontrol.

The settlement of trades in government securities (G-Secs) using the digital rupee was in the range of Rs 500 crore-600 crore a day in the first month of launch, which in the later months fell to just Rs 10 crore-60 crore a day.

In November, transactions worth Rs 7,140 crore were settled using digital currency, with the number of trades registered being 759.