Mumbai: Investing in digital public infrastructure such as the Unified Payments Interface (UPI) is reshaping credit markets by allowing banks and fintech firms to expand lending across the risk spectrum, said the Economic Survey 2026, released on Thursday. Fintechs especially play a distinctive role in reaching new-to-credit borrowers who were previously excluded from formal finance, the survey said, citing a working paper titled ‘Breaking Barriers to Financial Access: Cross-Platform Digital Payments and Credit Markets (2025)’, authored by Shahswat Alok.
“A growing body of research shows that a public, interoperable payment infrastructure can play a catalytic role in this transition by converting basic access into active financial participation,” the survey said, adding that a digital payment layer such as UPI bridges the gap between account ownership and access to formal credit by generating verifiable transaction histories and sharply reducing transaction costs.
The paper said while expansion of bank accounts is a necessary foundation, it is the effective use of those accounts that ultimately determines whether financial inclusion translates into meaningful economic opportunities. This is reflected in the fact that regions with affordable internet and widespread bank account penetration experienced the strongest credit expansion, underscoring the layered nature of financial inclusion and the complementary roles of incumbents and new entrants.
The RBI’s Financial Inclusion (FI) Index, which measures the country’s progress in achieving financial inclusion rose to 67.0 in March 2025 from 64.2 in March 2024, with all sub-indices registering steady growth. The index captures data related to banking, investments, insurance, postal, and pension sectors across three dimensions — access, usage, and quality.
As such, the growth in credit linked to digital payments has not led to increased default rates. Rather, the availability of more transaction data has allowed lenders to better identify underserved but creditworthy borrowers, enabling system-wide financial deepening without a deterioration in portfolio quality, the paper said.
Bank credit grew 14.5% on year in 2025 to ₹203 trillion, as per latest RBI data. Personal loans grew 8.9% year-on-year to ₹16.3 trillion as of the end of November 2025, whereas credit card outstanding grew 2.4% year-on-year to ₹3 trillion in November 2025.
The overall indebtedness levels of Indian households has expanded, surging past its five-year average to reach 41.3% of the gross domestic product (GDP) in FY25, RBI had said in its Financial Stability Report for December 2025. Within this, the share of retail consumer loans has grown consistently since March 2019, surpassing the shares of housing loans, agriculture loans, and business loans.
Non-housing retail loans, largely for consumption, accounted for 55.3% of household borrowings in the first half of FY26. Housing loans accounted for 28.6%, while agriculture and business loans comprised 16.1%, according to the report.
India’s real GDP grew at a six-quarter high of 8.2% in Q2 of FY26. In December 2025, the RBI projected real GDP growth for FY26 at 7.3%, with the figure for Q3 estimated at 7.0% and for Q4 at 6.5%. Real GDP growth for Q1 FY27 is seen at 6.7%. The Economic Survey today projected India’s real GDP growth at 7.4% for FY26.
Spurring output
The survey also cited a paper by T. S. Dubey and A. Purnanandam Dubey from May 2024 titled ‘Can Cashless Payments Spur Economic Growth?’, which showed that UPI adoption was associated with higher economic output. Further, a 2025 Artha Global survey of 4,800 respondents across Maharashtra and Bihar showed that UPI has become a general-purpose payment instrument, with at least 60% using it for store purchases, peer-to-peer transfers, bill payments, and online commerce. Nearly 80% reported using UPI for three or more distinct use cases, with broadly similar patterns across gender and rural-urban locations.
UPI touched new highs in 2025, posting record transactions in December in terms of both value and volume, according to the latest data published by the National Payments Corporation of India (NPCI). The platform also posted its highest annual transactions in 2025.
UPI processed 228 billion transactions worth a cumulative ₹300 trillion in 2025, 33% more than in 2024 in terms of the number of transactions (volume) and 21% higher in terms of value. In December 2025, the platform processed a record 21.6 billion transactions worth ₹30 trillion, up 29% year-on-year in volume terms and 20% in value terms . During the month, it recorded an average of 698 million transactions a day and an average transaction amount of ₹90,217 crore a day.
‘Integral part of economy’
“This diversification suggests that once adopted, UPI quickly becomes an integral part of routine economic activity,” the survey said, adding that even so, digital payments should be seen as “complementing” cash rather than “abruptly displacing” it. As such, over 90% UPI users continue to use cash regularly, reflecting a hybrid payments ecosystem that mirrors global trends.
“Rather than a simple transition to cashlessness, the evidence points to a gradual, layered evolution in which real-time payments expand choice, convenience, and efficiency while coexisting with established modes of exchange,” the survey said.
However, some “friction areas” remain, which the survey attributed to “broader digital divides” rather than “resistance to the system” itself. The next phase of inclusion then will come from deepening digital capabilities, awareness, and confidence so that the benefits of UPI are more evenly distributed, it said, adding that long-term sustainability of UPI will depend on supporting continued investment in infrastructure, reliability, and risk management while preserving its openness and interoperability.
The zero-cost, public-good design of UPI has been central to its rapid adoption, particularly among small merchants, and has allowed digital payments to become the default option for everyday transactions facilitating financial deepening. “Its significance lies not only in scale, but in how it has integrated digital payments into routine economic life, strengthened the link between access and credit, and created a platform for inclusive growth,” it said, adding that the priority now is to consolidate and extend UPI’s gains through complementary investments in digital capability and institutional capacity.
The survey also highlighted other digital public databases such as the Account Aggregator (AA) framework, which supplies lenders with verified data such as bank transactions and GST records, supporting credit growth among underserved and first-time borrowers.