Indian Banks Drive CBDC Adoption with Employee Benefit Disbursements

In a significant stride towards embracing digital transactions, Indian banks, including HDFC Bank, Kotak Mahindra Bank, Axis Bank, Canara Bank, and IDFC First Bank, facilitated the disbursement of employee benefits through the digital rupee in December. This move has contributed to the Reserve Bank of India (RBI) achieving its target of one million daily transactions by the end of 2023, as confirmed by informed sources.

The central bank’s digital currency, known as the e-rupee, operates as a digital substitute for physical cash, employing distributed ledger technology. Although the e-rupee pilot commenced in December 2022, transaction volumes only reached 25,000 per day by October’s end.

The integration with the popular United Payments Interface (UPI) played a pivotal role in broadening its use case for peer-to-peer money transfers via mobile apps.

Notably, last month, several major private and state-run banks opted to disburse employee benefits directly to the recipients’ CBDC wallets, instead of their conventional salary accounts, as disclosed by insiders. The RBI anticipates that non-financial entities will follow suit, further propelling transaction volumes.

The user base for the e-rupee has experienced steady growth, currently boasting approximately 4 million users, up from 3 million in December, according to an executive closely associated with the pilot. Despite the progress, sources requested anonymity as they are unauthorized to speak to the media, and the RBI has yet to respond to media inquiries.

Globally, countries like China, France, and Ghana are in the pilot stages of their central bank digital currency (CBDC) projects. Despite challenges faced by some, including Nigeria, which rolled out its digital currency with limited success, India’s approach includes incentivizing e-rupee transactions, aligning with the RBI’s push to enhance transaction volumes.

“Compensating employees using the CBDC is a good step,” remarked Sharat Chandra, co-founder of the India Blockchain Forum. He suggested that extending its use to other areas, such as toll tax collections, could further incentivize adoption.