The Reserve Bank of India (RBI) has dropped a major hint that the era of completely free UPI transactions could be nearing its end. RBI Governor Sanjay Malhotra has raised concerns over the financial sustainability of the massively popular Unified Payments Interface (UPI), stating bluntly: “UPI can’t run free forever.”

Speaking at a media event, Malhotra acknowledged that while UPI currently operates with zero charges for users, it’s the government that is subsidizing banks and service providers to keep the system running. “Payments and money are a lifeline,” he said. “We need a universally efficient system… but someone will have to pay the cost.”

With daily UPI transactions now crossing 60 crore — nearly double from just two years ago — the pressure on backend systems has intensified. Yet, with no revenue stream under the government’s zero merchant discount rate (MDR) policy, banks and payment platforms have long warned the model is financially unsustainable.

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“Any important infrastructure must bear fruits,” Malhotra noted, stressing that for digital payments to remain viable in the long term, the funding model must evolve.

In a key monetary policy update, Malhotra also confirmed that a lending rate cut is possible, as the RBI maintains a neutral stance. “We have the flexibility to move up, down, or pause,” he said, clarifying that the current low inflation at 2.1% is not the sole driver. Instead, the bank is focused on the inflation outlook over the next 6–12 months, which currently shows a 4.4% projection for Q1 2026.

Despite sluggish private investment, Malhotra said the recent 50 bps rate cut has already been fully transmitted to new loans, showing positive signs for credit growth. “Credit growth is slower than last year but remains higher than the 10-year average,” he added.

Addressing questions on digital currencies, the Governor emphasized India’s cautious stance. A committee — with RBI representation — is examining the global pushback against Central Bank Digital Currencies (CBDCs), including the recently passed Genius Act in the US.

On the global front, Malhotra acknowledged rising uncertainty, including US tariffs and financial market volatility. However, he reaffirmed that the RBI remains equipped with the tools needed to manage evolving challenges.

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