MUMBAI, Jan 4 (Reuters) - Indian banks disbursed some employee benefits through the digital rupee in December, helping the Reserve Bank of India meet its target of one million daily transactions by end-2023, three sources directly familiar with the development said.

The central bank digital currency (CBDC), called the e-rupee, has been devised as a digital alternative to physical cash and has been built using distributed-ledger technology.

The RBI started its e-rupee pilot in December 2022 but transactions averaged only 25,000 a day by the end of October, even though its use case was significantly broadened by linking it to the popular United Payments Interface (UPI), a framework that facilitates peer-to-peer money transfer via mobile apps.

However, last month some large private and state-run lenders disbursed amounts related to employee benefit schemes directly to employees' CBDC wallets, instead of their salary accounts, the first source familiar with the pilot said.

These lenders included HDFC Bank (HDBK.NS), Kotak Mahindra Bank (KTKM.NS), Axis Bank (AXBK.NS), Canara Bank (CNBK.NS), and IDFC First Bank (IDFB.NS) the second source said.

The RBI expects non-financial firms to follow suit as well, helping boost transactions further, the source added.

Even the user base has been steadily growing ... "to about 4 million users currently, up from 3 million in December," a third executive familiar with the pilot said.

The sources declined to be identified as they are not authorised to speak to the media. The RBI did not immediately respond to an email seeking comment.

Globally, countries including China, France and Ghana are in the pilot stages of their CBDC projects. Others like Nigeria have rolled out their digital currency, but with limited success despite offering rewards like discounts on auto-rickshaw rides.

Indian banks too are offering incentives for e-rupee transactions, following a nudge from the RBI to boost volumes, Reuters had reported earlier.

"Compensating employees using the CBDC is a good step," Sharat Chandra, co-founder of India Blockchain Forum said. Other avenues such as toll tax collections can also be included to further encourage adoption, he added.

(This story has been corrected to replace ICICI Bank and IDBI Bank with Axis Bank, IDFC First Bank and Canara Bank in paragraph 5)