A significant leap in the modernization of payment infrastructure happened in India when they introduced their Central Banks Digital Currency (CBDC) initiative: e₹ in pilot mode on December 1st, 2022 [1]. In this short span, 15 commercial banks have gone live with CBDC and are offering wallet-based services out of 128 commercial banks in the country [2, 3]. In the retail segment, outstanding CBDC amounts had increased from INR 6 crores in March 2023 to INR 234 crores in March 2024 [4]. Even though there was a significant growth in the adoption in the initial phase, a large part of the banking ecosystem is yet to explore the features of CBDC.
CBDC: Retail vs Wholesale
- Retail CBDC: Targeted at the general public for peer-to-peer (P2P) and peer-to-merchant (P2M) transactions. It is very similar to cash but in a digital form, allowing users to carry and transact using digital wallets.
- Wholesale CBDC: Aimed to carry out large-value transactions, especially designed for interbank settlements. Helps in reducing settlement risk, improving efficiency, and facilitating programmable financial instruments.
Why the Slow Adoption
Even though prominent players like SBI, HDFC, Axis, ICICI, Yes Bank, etc. have joined the pilot program, it represents only a small fraction of India’s commercial banking landscape. There can be several factors that can influence the pace of adoption.
- Infrastructure readiness: A Robust technical infrastructure associated with CBDC might be a major concern for smaller banks to do the adoption as they lack the same.
- Regulatory Concerns: There are institutions that are waiting for more detailed operational and compliance guidance from the RBI and NPCI, as it is in the pilot stage now. Also, the understanding of the value propositions of CBDC is still limited among banks and customers currently.
- Implementation Cost: As a new product, CBDC demands a huge investment to build and manage the digital wallet ecosystem, which can discourage small banks.
Why Should Banks Join?
- First Mover Advantage: As an innovation leader, banks that are already live with CBDC gain valuable insights into user behaviour and CBDC transactional patterns ahead of competitors. Their proactive adoption enhances the brand value, showcasing their readiness for the future. This offers an opportunity to fine-tune the infrastructure and strengthen the risk management practices. Also, a competitive edge on possibilities of customization and service differentiation, as CBDC offers programmable payment services.
- Enhanced Customer Engagement: Programmable nature opens up numerous opportunities for banks through plenty of digital offerings that can create more interactive customer experiences. People from rural or low-connectivity areas can also access banking services as CBDC will support offline payments shortly. This customer base expansion can be an added advantage as it reinforces the bank’s vision of social and financial inclusion.
- Efficiency and Cost Reduction: Wholesale CBDC can help in streamlining the interbank settlement processes as it eliminates intermediaries and reconciliation delays. This can make real-time transactions with enhanced transparency and traceability a reality. On the retail side, it helps in reducing the cost associated with cash handling, distribution, and fraud prevention. Faster transactions with reduced transaction expenses will offer a better banking experience to all users.
Role of Nodal Banks in Accelerating Adoption
Banks that act as anchors for piloting and managing CBDC infrastructure, along with customer and merchant onboarding, are designated as Nodal banks in the CBDC pilot. Along with regulatory bodies, they are responsible for creating a framework for KYC, transaction monitoring, and fraud detection. They also facilitate CBDC wallet distribution and provide onboarding support.
What’s Next?
A few enablers that must be addressed while proceeding with CBDC adoption beyond the pilot stage are:
- Regulatory Incentives: RBI can offer different kinds of incentives to smaller banks to facilitate CBDC adoption
- Shared Infrastructure: To make the integration process easier and onboarding faster, nodal banks and technology partners should offer modular platforms
- Awareness Campaigns: Customers and bank staff must be educated on use cases and benefits of CBDC for building trust and interest
- Standard APIs and Interoperability Protocols: As current digital payment solutions like UPI have acquired significant reach and trust, interoperable features can simplify the adoption process
A Missed Opportunity or the Next Frontier?
More than just a digital payment tool, CBDC represents the future of sovereign currency. Current momentum is a unique opportunity for banks to lead this transformation, as only 15+ banks have taken the first step, and the road ahead is wide open. Early CBDC adoption can reform the digital offerings by reducing operational costs and enhancing customer trust. Hence, to be part of this digital transformation and to have a meaningful contribution, banks should take the initiative now.
References
- CBDC Tracker. (n.d.). https://cbdctracker.hrf.org/currency/india
- Reserve Bank of India. (n.d.). https://www.rbi.org.in/commonman/English/scripts/FAQs.aspx?Id=3686#:~:text=Currently%2C%2015%20banks%20are%20offering%20CBDC%20wallets.
- Wikipedia contributors. (2025, May 11). List of banks in India. Wikipedia. https://en.wikipedia.org/wiki/List_of_banks_in_India#:~:text=As%20of%201st%20May%202025,10%20External%20links
- ET Bureau. (2024, May 30). CBDC usage soars 39-fold among retail users, plunges in wholesale. The Economic Times. https://economictimes.indiatimes.com/news/economy/finance/cbdc-usage-soars-39-fold-among-retail-users-plunges-in-wholesale/articleshow/110573059.cms?from=mdr
