The Centre on Wednesday debunked claims that banks have been asked to stock up ATMs ahead of the rollout of new UPI charges from October 15. According to the PIB Fact Check, the government stated that "the claim being made in the headline is fake. No such instructions have been issued by RBI or the Finance Ministry to stock up ATMs ahead of the UPI fee roll-out on October 15." The clarification came through a post shared on social media platform X, after a news report claimed that banks had been instructed to stock up ATMs ahead of the UPI fee rollout. The government urged people to report suspicious claims allegedly issued by the Indian government to the @PIBFactCheck X handle, with users able to report such claims via the mobile number +91 8799711259 or email at factcheck@pib.gov.in.
The Reserve Bank of India (RBI) and finance ministry have asked banks to ensure adequate cash availability at ATMs from October 15 as a cautionary measure when new charges on select UPI transactions take effect. According to Mint, the people aware of the matter stated that "the use of cash through ATMs may see a temporary increase as people and merchants adjust to the new Merchant Discount Rate (MDR) regime for certain UPI transactions." The government and RBI are monitoring whether the introduction of charges on select UPI transactions could trigger a temporary increase in cash withdrawals, with the potential shift towards cash coming as banks' ATM networks have contracted over the years even as digital payments continue to expand. RBI data show that the total number of ATMs declined to 251,057 at the end of March 2025 from 253,417 a year earlier, with public sector banks reducing their network to 133,544 ATMs from 134,694. The National Payments Corporation of India has announced a change to its flagship payments system, the Unified Payments Interface (UPI) with the new MDR implementation.
Former NITI Aayog vice-chairman Rajiv Kumar has urged the government to keep UPI merchant payments free for a few more years, warning that even a small fee could push transactions back towards cash. His comments come after the government announced a 0.4% MDR on UPI merchant payments above ₹2,000 from October 15, 2026, while keeping consumer payments free. Former RBI member Aruna Sharma criticized the decision, stating "Unfortunately, the decision to charge for UPI is a step towards disincentivising digital payments and incentivising cash in a price-sensitive market." She warned that "if fear of a shift to cash goes viral because of this step, it's not just withdrawals. Merchants will also deposit cash, and accounting charges will shoot up, triggering a cash economy." The Finance Ministry anticipates no rise in cash transactions following the UPI MDR implementation, stating that only a small percentage of total UPI volume will be affected by this new charge. However, protests by traders have also called for a "No UPI Day" on October 2, highlighting growing opposition to the fee implementation.
Under the revised framework effective October 15, 2026, person-to-merchant UPI transactions above ₹2,000 will attract a 0.4% merchant discount rate (MDR), capped at ₹300 and paid by the merchant, while transactions up to ₹2,000 will remain free. According to Mint, about 96% of P2M UPI transaction volume is below ₹2,000 and will therefore remain outside the standard MDR regime, with person-to-person transactions also staying free. For merchants processing 50 bills of ₹10,000 daily, this translates to a new cost of ₹2,000 per day or approximately ₹60,000 monthly. The 0.02% MDR will also impact specific mutual fund and broking transaction payments, with one-time investments in mutual funds and broker wallet replenishments subject to this fee, while recurring mutual fund SIPs via UPI AutoPay will remain exempt. However, small merchants classified under the person-to-person merchant framework, with UPI receipts of no more than ₹1 lakh a month, remain exempt from the new charges. The merchant fees on UPI transactions above ₹2,000 will end a six-year period in which the digital payments network operated without a merchant fee.
A study by the Department of Financial Services titled "Socio-Economic Impact Analysis of Incentive Scheme for Promotion of RuPay Debit Card and low-value BHIM-UPI Transactions" documents significant socioeconomic effects of digital payment systems. The Nasscom-Arthur D Little Study titled "Digital Public Infrastructure of India - Accelerating India's Digital Inclusion" suggests that Aadhaar, UPI and Fastag together supported value creation equivalent to 0.9% of gross domestic product in 2022, with estimates of significantly higher returns by 2030. An alternative approach to the current MDR structure suggests a flat rate fee of 20 paise per transaction, which would amount to ₹5,882 crore annually based on 24.51 billion transactions in August 2026. This flat rate structure is argued to create less distortion of behavior compared to the current MDR design, which introduces a flat fee of ₹300 for transactions exceeding ₹75,000 and proportionate fees for transactions between ₹2,000 and ₹75,000. The current MDR design raises questions about behavioral changes among users and potential return to cash-based transactions, while the flat rate approach could maintain stability in digital public infrastructure growth.
The fee changes pose substantial risks to the banking system's cost structure and cash dynamics. According to Mint, currency in circulation stood at ₹42.86 trillion at the end of August 2026, up 12.5% from a year earlier, with debit-card ATM cash withdrawals declining from ₹32.8 lakh crore to ₹28.5 lakh crore between FY23 and FY26. However, the analysis suggests that if merchants nudge customers towards cash to avoid UPI fees, banks will lose low-cost Casa float and incur cash handling costs, creating a net loss to the banking system. Former RBI official Prodosh Ganguly noted that "temporarily, a certain surge will be there. People's corresponding actions will also be towards using cash for some time." However, he emphasized that "the increase would not necessarily signal a reversal of the longer-term shift towards digital payments, as consumers have already developed a habit of using digital modes for everyday transactions."
The fee changes have broader implications beyond banking costs, with concerns about equity in its effects on different income groups. As reported by Business Standard, UPI served as a medium to bring small traders into formal finance, and levy charges may drive small traders back to informal cash transactions. For the government, if currency circulation increases by just 1% of GDP due to UPI avoidance, it would mean approximately ₹3.5 trillion leaking out of bank deposits at current annual GDP levels. The ₹2,000 transaction threshold of MDR is intended to protect small consumers as more than 95% of all merchant transactions are in this bracket, but research shows that payment costs often reach consumers even when merchants are formally charged. Former EGROW Foundation CEO Charan Singh praised the government's preparation, stating "the preparation by the Central Government, the Reserve Bank, and banking industry is good public policy." He noted that "there could be hiccups in the early stages of implementation. This preparation will ensure that there is confidence maintained in the currency and banking system of the country."
