UPI Transforming Co-op. Banking in Rural India: Mandar Agashe

Mandar Agashe
in Voices, Business, TOI

Even as India continues grappling with the socio-economic consequences of the ongoing Coronavirus pandemic, digital banking or online money transmission has aided every section of the country in these trying times. To overcome the restriction on human activities brought about by the pandemic, people are employing every available method of cashless and contactless money transmission. The uptick in digital transactions under these trying circumstances has demonstrated that the country’s financial sector digitalization movement is here to stay. Digital payment technologies like UPI, AePS, PoS, etc. have played an important role in the Indian economy. 

Of all these payment technologies, UPI (Unified Payment Interface) has been a game-changer as it took conventional banking beyond bank doors into the hands of the public. The first wave of digital transactions post demonetization in 2016 received a major boost during the pandemic. People were forced to stay indoors, resulting in a surge in online shopping, thereby promoting UPI usage. In fact, June 2021 witnessed an all-time high with over 134 crore UPI transactions amounting to Rs. 2.62 lakh crore. In his recent address, PM Modi lauded the penetration of UPI across the country. While speaking about the launch of customer-centric initiatives of the Reserve Bank of India (RBI), he said that digital transactions in India have jumped a whopping 19 times in just the last seven years. 

Despite these staggering numbers, the adoption of UPI in rural India is still at a nascent stage where cash continues to rule the economy. While urban India quickly adapted to this digital revolution, a cash-dominated rural Indian society faced some hiccups in embracing this newly established order. According to a report by Credit Suisse, 72% of India’s consumer transactions take place in cash. The key reason behind this rural-urban divide is the lack of adequate infrastructure. Comprising over 60 percent of India’s population, rural India has always remained a key area of focus in implementing the government’s initiative of financial and digital inclusion.

Empowering co-operative financial institutions has been the best bet to reach the rural Indian populace. Over 97,000 rural co-operative banks have significant control over the rural banking system, playing a transformative role in the spread of the organized banking system and in the adoption of UPI by the rural populace. However, these banks typically work in silos and their connectivity and interoperability with mainstream banks have always been low. Moreover, these banks generally face financial constraints that limit their ability to adopt technology and remain relevant in a fast-changing market. To overcome these infrastructural and financial constraints, these banks have embraced the PaaS (Platform as a Service) model, wherein they can avail the latest technology platforms without incurring a huge CAPEX. Indeed, while the financial inclusion effort got off to a delayed start due to infrastructural problems, attitudes regarding technology have begun to shift. With increasing technological awareness, UPI’s rural customer base is growing at an exponential rate. 

In the last five years, UPI products have been spreading rapidly across different strata in the country, bringing a huge number of rural bankers into the realm of digital banking. The last five years have witnessed the UPI platform growing from just 21 banks with 1 lakh transactions and a transaction value of Rs.38 lakh in July 2016 to 261 banks with 420 crore transactions and a transaction value of Rs. 7.71 lakh crore as of today. With the adoption of UPI by urban and rural co-operative banks and the projected internet penetration and economic growth of India, the number of UPI transactions is expected to grow 10x, reaching a staggering 5,000 crore. While this might seem to be a tall order, the government and RBI are optimistic about achieving this landmark with the help of the mainstream and cooperative banking system, especially in rural India.

Link (opens in new tab): https://timesofindia.indiatimes.com/blogs/voices/upi-transforming-co-operative-banking-in-rural-india/


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I am happy with the pace of work (in developing the UPI solution for ICICI Bank). It is also very encouraging the way you are tracking the progress. I am more confident that we can meet the deadline successfully.

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Former Head - Digital Channels, ICICI Bank Ltd.

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