The government and banks are set to discuss the subsidy required to support UPI transactions after the Merchant Discount Rate (MDR) comes into effect on October 15, 2026.
Officials from the Finance Ministry said MDR collections are unlikely to fully cover the cost of operating and maintaining the UPI payment infrastructure. The government will therefore hold discussions with the Indian Banks’ Association (IBA) to determine how much of the existing subsidy should continue and in what form.
The Finance Ministry will also work with banks and merchants to ensure that the MDR charge is not passed on to customers.
For the current financial year, the government has allocated ₹2,000 crore under its incentive scheme supporting RuPay debit cards and low-value BHIM-UPI transactions. The upcoming discussions are expected to determine how the subsidy mechanism should evolve once MDR becomes applicable.
Officials said there is currently no proposal to postpone the October 15 rollout date.
The development comes as UPI continues to remain a major channel for digital payments in India, with the government seeking to balance the cost of maintaining the payment ecosystem with the need to keep digital transactions accessible to users and merchants.
