Quick Answer: A CBDC could weaken banks if people move large deposits into it, because banks would have less money to lend and lower fee income. But in India today, the digital rupee is still a small pilot, so the immediate threat is limited. The RBI’s design choices, such as no interest and wallet limits, are meant to protect banks.
What Is a CBDC and the Digital Rupee?
A Central Bank Digital Currency (CBDC) is the digital form of a country’s official currency, issued directly by its central bank. India’s version is the digital rupee (e₹), issued by the Reserve Bank of India. It is legal tender, equal in value to the rupee, and it is not a cryptocurrency.
The RBI began with a wholesale pilot on 1 November 2022, and then started the retail pilot on 1 December 2022.
Types of Digital Rupee
- The RBI has divided the digital rupee into two forms, based on who uses it.
- Wholesale CBDC (e₹-W)
- Used by banks and financial institutions for interbank settlement and government securities trading.
- Retail CBDC (e₹-R)
- Used by individuals and businesses for everyday payments through a mobile wallet.
How Is the Digital Rupee Different from UPI and Crypto?
The digital rupee is currency issued by the RBI, UPI is a payment system that moves bank money, and cryptocurrency has no central issuer and swings in value.
| Feature | Digital Rupee (CBDC) | UPI | Cryptocurrency |
|---|---|---|---|
| Issuer | Reserve Bank of India | NPCI runs the system; money stays in bank accounts | No central issuer |
| Legal tender | Yes | Moves existing bank money | No |
| Price | Always equals ₹1 | Always equals ₹1 | Highly volatile |
| Liability of | RBI | Your bank | None |
How Can CBDC Affect Traditional Banks?
CBDC can affect banks in four main ways: deposits and lending, profits, safety and privacy, and their role in monetary policy and customer relationships.
Can CBDC Reduce Bank Deposits and Lending?
Yes, in theory. Banks lend out the money customers deposit. If many people shift savings into CBDC wallets, banks would have fewer deposits and might need costlier funding, which could raise loan rates or tighten credit.
Risk During a Crisis
If people lose trust in commercial banks, they may rush to hold the central bank’s digital currency, which can speed up a bank run.
How the RBI Limits This Risk
The RBI has been against paying interest on retail CBDC, because people might otherwise withdraw money from banks and convert it into digital rupees. Limits on wallet balances are another possible safeguard.
Will CBDC Reduce Bank Profits?
- It can. Banks earn from the gap between deposit and loan rates, and from payment fees.
- Payment Fee Income
- Cheap, instant CBDC payments could cut the fees banks earn on cards and transfers.
- Cross-Border Remittances
- Faster, lower-cost international transfers could reduce the remittance income banks earn today.
Is CBDC Safe and Private?
It has both strengths and risks. Because a central bank issues it, there is no credit risk on the currency itself. Two concerns remain.
Privacy Concerns
Digital transactions can be more traceable than cash. How much anonymity small payments get depends on the final design.
Cybersecurity Risks
Like any digital system, CBDC can face hacking and fraud, so strong infrastructure and user awareness are essential.
Does CBDC Change Monetary Policy and Customer Relationships?
Somewhat. In India, both effects are still largely theoretical.
Impact on Monetary Policy
A CBDC gives the central bank a clearer view of money flows and a possible new channel to pass on policy. This could reduce the role banks play in that process.
Less Customer Interaction
When more money moves through wallets, customers visit branches less. That gives banks fewer chances to sell loans, insurance and investments.
How Big Is the Digital Rupee in India Right Now?
Still small. Adoption is modest compared to UPI, and circulation is tiny next to total bank deposits.
Digital Rupee Circulation Data
According to the RBI’s annual report, e-rupee in circulation rose to ₹1,016 crore by the end of March 2025, up from ₹234 crore a year earlier. At that point the retail pilot covered 17 banks and about 60 lakh users, and offline and programmable features had been added. The RBI Annual Report 2025-26 records circulation at about ₹771.7 crore on 31 March 2026, roughly 24% lower than the year before.
Usage, however, has kept growing in other ways. A Business Standard report quoting an RBI Deputy Governor says retail CBDC transactions reached about 120 million, with a total value above ₹28,000 crore.
| Date | e₹ in Circulation |
|---|---|
| March 2024 | ₹234 crore |
| March 2025 | ₹1,016 crore |
| March 2026 | ~₹771.7 crore |
Why the Immediate Threat Is Limited
These amounts are very small compared to deposits held in Indian banks, so large-scale deposit flight is unlikely today. The bigger question is what happens if adoption grows in the future.
How Can Banks Prepare for CBDC?
Banks can prepare by joining the CBDC ecosystem and focusing on services a wallet cannot replace.
- Offer CBDC wallets themselves, since the RBI uses a two-tier model where banks distribute the currency.
- Focus on credit, advisory and wealth management services.
- Invest in cybersecurity and customer experience.
- Follow RBI rules on wallet limits and interest closely.
Conclusion
CBDC can make payments faster and more inclusive, but it raises real questions for banks about deposits, lending and profits. In India, the effect so far is small, and the RBI’s cautious pilot approach suggests it wants to protect financial stability. The final impact will depend on how the digital rupee is designed and how quickly people adopt it.
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FAQs
What is the digital rupee in simple words?
It is the RBI’s official digital currency. It works like a digital version of cash and has the same value as the rupee.
Is the digital rupee the same as Bitcoin?
No. Bitcoin has no central issuer and its price keeps changing. The digital rupee is issued by the RBI and always equals ₹1.
What is the difference between the digital rupee and UPI?
UPI moves money between bank accounts. The digital rupee is actual currency held in a wallet.
Does CBDC replace bank accounts?
Unlikely. The RBI designed it to work alongside cash and bank deposits.
Does the digital rupee earn interest?
The RBI has so far indicated that it does not favour interest on retail CBDC, mainly to protect bank deposits.
Who can use the digital rupee?
It is available through pilot programmes. Eligible users can register through wallet apps from participating banks or approved providers.
Can CBDC cause a bank run?
In a crisis, people could shift deposits to CBDC quickly, which is why central banks consider safeguards such as wallet limits.
Disclaimer
This article is for educational purposes only and is not financial or investment advice. Information may change as RBI rules and data are updated. Please consult a qualified advisor before making financial decisions.
