UPI Delays and the Hidden Float: A Harshad-Style Question

by reviewzinsight.com · 13 September 2025

Disclaimer: This article does not accuse or allege wrongdoing by any bank, regulator, or financial institution. It raises a question for discussion. The purpose is to encourage debate about transparency, accountability, and customer rights in India’s fast-growing digital payments ecosystem.

The Background

India’s digital revolution has changed how people handle money. UPI (Unified Payments Interface) is now the backbone of retail payments. It allows instant money transfers, 24/7, with a few taps on a smartphone. In August 2025 alone, UPI processed over 13 billion transactions, worth more than ₹20 trillion.

The system works smoothly most of the time. But users often complain about a specific pain point: money gets debited from their bank account, yet the receiver does not get it. The transaction goes into “processing,” and after one to three days, the amount comes back.

For customers, this creates stress. For businesses, it can disrupt cash flow. For the system as a whole, it raises an interesting question: where does this money sit during those days?

The Harshad Mehta Parallel

To understand why this question matters, recall Harshad Mehta’s method in the early 1990s. He exploited settlement delays in India’s banking system. When banks issued cheques and receipts for government securities, there was a gap before settlement. Harshad diverted those funds into the stock market, fueling a bull run that eventually collapsed in a massive scam.

The lesson from that episode was clear: settlement delays create opportunities to use money temporarily, even if it belongs to someone else.

Now, UPI is fully digital and regulated by the NPCI under RBI’s supervision. No individual can repeat Harshad’s methods in this system. But the structural similarity makes people wonder: could UPI’s settlement delays be creating a modern-day float?

The UPI Transaction Flow

Here is how a UPI payment works:

The customer initiates a transfer on an app.
The bank immediately debits the customer’s account.
NPCI routes the request to the receiver’s bank.
The receiver’s bank must confirm credit.
If the confirmation fails due to downtime, network issues, or errors, the transaction remains “in process.”
After a defined period, the system reverses the transaction and refunds the customer.

During this period, the money is neither with the customer nor with the receiver. It sits inside the system.

The Scale of the Float

Even if only 0.1% of UPI transactions face such delays, the numbers are huge. With billions of monthly transactions, this could involve thousands of crores in temporary limbo.

The customer will eventually get the money back. But while it sits in processing, does it remain idle, or does it provide liquidity to banks or NPCI?

This is the crux of the debate.

Legal vs. Ethical Dimension

Legally, there is no problem. The system functions within RBI guidelines. The money eventually returns. The banks and NPCI manage risk, liquidity, and settlements under strict oversight.

Ethically, the question remains: if billions of rupees float in the system for one to three days, should customers receive compensation? After all, banks charge customers interest if EMIs or dues are delayed, even by a single day.

If the system uses customer money for short-term liquidity, even indirectly, transparency becomes important.

Why Transparency Matters

Trust drives financial systems. UPI works because people trust that their money will move instantly. When transactions fail, that trust faces a test.

Transparency on three points could strengthen confidence:

Disclosure of float size: What is the daily average value of delayed UPI transactions?
Use of funds: Does the money sit idle in a neutral account, or does it earn interest for any party?
Customer rights: Should there be a rule for compensation if money remains stuck beyond a certain number of hours?

The Harshad Question

When people compare this float with Harshad Mehta’s scam, they do not suggest fraud. They highlight the principle: temporary use of other people’s money during settlement gaps.

Harshad used this principle illegally for personal gain. The UPI system might generate a similar float by design. The key difference lies in intent and regulation.

But the similarity raises a provocative question: Is today’s digital float the modern equivalent of yesterday’s settlement gap?

Perfectly Legal, But Is It Fair?

Nobody alleges that banks or NPCI misuse customer funds. The system works under RBI supervision. Yet fairness is about perception.

If customers feel their money is “held” without clarity, dissatisfaction grows. If businesses lose liquidity because refunds take days, efficiency suffers.

The debate is not about legality. It is about fairness, transparency, and customer empowerment.

Global Perspective

Other countries face similar issues. In the US, ACH transfers take two to three days. In Europe, SEPA systems face occasional delays. Payment companies often use the float to manage liquidity.

India’s UPI stands out for speed and scale. But even the fastest systems cannot escape the settlement question. The challenge is to balance efficiency with fairness.

The Road Ahead

Three steps could address these concerns:

Clearer communication: Apps and banks should explain why delays happen and when refunds will occur.
Data publication: NPCI could publish monthly figures on delayed transactions and refund timelines.
Customer compensation: If money remains stuck for more than 24 hours, nominal compensation could apply, just as customers pay penalties for delays.

These steps would not only improve trust but also make India’s fintech ecosystem more transparent and resilient.

Conclusion

UPI is India’s pride. It represents speed, inclusion, and innovation. But even the best systems must face tough questions.

When money leaves a customer’s account but does not reach the receiver, it creates a float. The scale of this float could run into thousands of crores. The system eventually refunds the money, but the question remains: is this float a modern, system-driven version of the old settlement gaps that Harshad Mehta once exploited?

The answer may lie in transparency, not speculation. If banks and regulators openly share how these funds are handled, trust will remain strong. If they also consider customer rights in the process, UPI can set not just a global benchmark for speed but also for fairness.

Disclaimer (repeated): This article does not allege wrongdoing by any institution. It raises questions to encourage healthy discussion about transparency and fairness in India’s financial system.

Also Read – iPhone 17 Review – My Hands-On Experience