UPI is abuzz with debt payments: Keep track of this trend

In the end, outcomes matter. Bank transfers by UPI are not just convenient, they have grown ubiquitous enough to offer useful snapshots of the money flowing around through this platform.

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Take last month’s data from the National Payments Corporation of India (NPCI), which runs UPI. By usage volume, it kept up its routine of setting yet another record. Almost 19.5 billion UPI transactions were logged in July, with a bit over ₹25 trillion zipped across. Annualized, that would be ₹300 trillion, a huge figure as a proportion of GDP. The grand bonus for data addicts, though, is NPCI’s reported slice-up of these instant online transfers.

So called peer-to-peer UPI transactions account for a 36.4% chunk of July’s volume. While NPCI clubs these together, we could assume that they are not all casual swipes among users, but include high-value transfers as well as payments made to hawkers of goods and services in India’s vast informal sector.

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That said, broadly identified merchants form the bulk of UPI’s volume logbook: 12.4 billion transactions last month, worth roughly ₹7.3 trillion. This is a pie that NPCI has helpfully sliced into broad business categories that log frequent transfers. By transaction volume, groceries and supermarkets have the largest slice with over 3 billion swipes—adding up to ₹64,882 crore over the month.

Eateries, chemists, telecom services, fuel-filling stations and the like have thinner slices, as we’d expect, given the domination of shopping baskets by daily home-use items.

By value, however, the category that glares out comprises debt collection agencies. With just about 161.4 million transfers, this group accounts for the biggest share of that merchant pie in rupee terms (barring ‘others’): worth almost ₹93,858 crore or 12.8% of the total. It works out to an average payment of about ₹5,814 last month. Put this way, it may not sound like much, but it adds up to 3.8% of overall UPI transfers—clearly more than a trivial sliver of India’s nominal GDP.

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Should we worry about so much money being swiped across the net to debt collection agencies every month? Not if it is viewed through the lens of a credit boom free of distress. Easy access to online loans has played a role in the country’s digital exuberance of the past decade or so, as financial apps multiplied and handheld devices enabled a credit outreach unlike any before.

It was not for nothing, though, that the Reserve Bank of India (RBI) raised an eyebrow in late 2023 over a wave of retail lending with no collateral to back it. Such advances are usually made at high rates of interest, which is among the factors that raise the risk of loans going unpaid.

In response, RBI had notched up the capital that lenders must keep aside to cover defaults on unsecured consumer loans. This was amid reports of borrowers merrily taking new loans to repay old ones, thus running payment cycles that could enlarge into debt traps.

While the central bank eased its 2023 squeeze earlier this year, what lurks in this space mustn’t fall off its risk map. Across large numbers, reckless behaviour could yet spell trouble. All said, we must stay alert to trends revealed over the months ahead by this UPI gauge.