Reserve Bank of India Governor Sanjay Malhotra on Wednesday said levying a "small fee" in the form of merchant discount rate (MDR) will not have a "major impact" on UPI transaction volumes.

"As of now, we do not see any drop in volumes. And I don't personally think that a small fee will have a major impact on the volumes," he told reporters at the central bank headquarters here.

It can be noted that last month, the government allowed charging of the MDR under which transactions above Rs 2,000 will attract a fee of 0.4%.

Speaking to reporters hours after announcing a rate hike and making it clear that a rate cut is off the table, Malhotra said banks' credit growth will continue to be strong going forward and will continue to aid the broader economic activity.

He said the RBI is conscious of adverse impact on asset quality at non-bank lenders amid a flush of liquidity, but made it clear that the central bank does not expect any such eventuality playing out.

The system liquidity will not be in such a high surplus as seen in the last few weeks for a very long time, he added.

The FCNR(B) scheme, where banks raised nearly $133 billion in deposits from the diaspora under a concessional swap facility, illustrates the strength in macroeconomic fundamentals of the country, the career bureaucrat-turned-central banker said.

He also added that the RBI is confident that banks will deploy the funds prudently.

Malhotra said external headwinds have resulted in a dip in flows and added that the pressure on the current account is a temporary issue.

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