What purpose would increasing transaction limits on UPI serve?  

RBI increases UPI transaction limits for person-to-merchant transactions, potentially boosting high-value transactions and expanding UPI's scope.

The story so far: The Reserve Bank of India (RBI) on Monday, permitted banks and other relevant stakeholders to increase the upper limit on UPI transactions based on “evolving user needs”. The revision has been sanctioned only for person-to-merchant (P2M) transactions, and not person-to-person (P2P) transactions. Banks would continue to hold their discretion on deciding their individual limits within the framework to be put out by the payment and settlement systems operator National Payments Corporation of India (NPCI).  

Currently, an individual cannot transact more than ₹1 lakh through UPI. Though this applies to both P2P and P2M transactions, the latter is endowed with certain exceptions. These entail an enhanced cap of ₹2 lakh for specific transactions relating to capital markets, insurance, tax collections and foreign inward remittances. This is in addition to an upper ceiling of ₹5 lakh for facilitating participation in initial public offerings (IPOs) and retail direct schemes alongside education and healthcare. According to the BSE, utilising UPI in public issue process was to bring in “comfort, ease of use and reduce the listing time for public issues”.  

For perspective on UPI in capital markets, markets regulator Securities and Exchange Board of India (SEBI) observed in a consultation paper (published January this year) that individual transactions below ₹1 lakh account for 92.9% of the total transactions. Furthermore, transactions between ₹1 lakh to less than ₹2 lakh account for 3.9% of the transactions and those between ₹2 lakh to ₹3 lakh constitute 1.3%. On a day-to-day basis, the three slabs represented 91.5%, 4.6% and 1.6% of the total transactions.  

Although what is more interesting to note is how the dynamic shapes up in the larger payment ecosystem. An evaluation of NPCI data for March pointed at P2M transactions representing 62.7% of the total transactions made through UPI. However, in terms of value, it represented only 27.1% of the overall pie. Thus, potentially reflecting an unbalanced paradigm because of excess volume that is not translating to proportionate values.  

As a matter of fact, potentially observing somewhat similar paradigms in the consultation paper, SEBI had sought that the upper limit for transactions in the capital market be increased to ₹5 lakh/day.  

Reeju Datta, co-founder of payments facilitating app Cashfree Payments told The Hindu that the measure would “dramatically” push up the amount of money processed via UPI. This would be because higher-value transactions would now get to contribute much more exponentially. “We can expect about 3-4x growth by this May. Maybe not much in the number of transactions but value,” Mr. Datta opined.  

Neha Singh, CEO & Co-founder at research and analytics company Tracxn held that when padded with adequate security measures it could help with facilitating seamless settlement of payments to vendors, making high value purchases (in one go) and instant transfer of funds for personal emergencies to trusted parties, among other things. According to Ms. Singh, the revision would “significantly” help further the scope of UPI payments. She observed the banking regulator increasing limits last year for specific sectors and e-mandates for recurring payments, which often involve high-value transfers, have improved the ease of transaction in these sectors.