rbi: Soiled notes taking more space than usable ones, banks tell RBI

rbi: Soiled notes taking more space than usable ones, banks tell RBI

Banks have conveyed to the Reserve Bank of India (RBI) that soiled notes are occupying more space in chests than the issuable currency, seeking an urgent intervention. Even as overall cash in the system has gone up, soiled notes are occupying more space, a senior bank executive said, suggesting an increase the chest cash holding limits till the soiled currency notes are lifted.

“RBI can take a policy decision for increasing the cash holding limits of currency chests if the soiled currency notes exceed a certain percentage, say, 60% of chest space,” the banker said.

RBI regional offices can hand out approvals for increasing the cash holding limits, the person said. The central bank has embarked on a ‘clean note policy’, which includes retrieval and processing of banknotes received from currency chests and destruction of soiled banknotes in an automated manner.

According to the RBI annual report, there was a higher than average rise in banknotes in circulation in 2020-21 primarily due to precautionary holding of cash by the public due to the Covid-19 pandemic.

The value and volume of banknotes in circulation increased by 16.8% and 7.2%, respectively, during 2020-21, as per the report. In value terms, the share of Rs 500 and Rs 2,000 banknotes together accounted for 85.7% of the total value of banknotes in circulation as on March 31, 2021, against 83.4% a year earlier. The report further said the pandemic also affected disposal of soiled banknotes although it was expedited during the latter part of 2020-21.

“Despite efforts, the year as a whole still witnessed a 32% decline in the disposal of soiled banknotes as compared to the previous year,” the report noted. At present, there are 3,054 currency chests of which 55% are with the State Bank of India (SBI).

“We anticipate that as the informal economy gathers pace as the country emerges from the shadow of the Covid-19 pandemic, there will be a greater demand for currency notes,” a second bank executive said.

Some industry participants suggest that the central bank should comprehensively update its currency chest policy. “They should allow private third party non-banking entities to operate currency chests for greater cost efficiency,” said Rituraj Sinha, group MD at private security firm SIS India.

RBI is in the process of introducing varnished banknotes in Rs 100 denomination on a field trial basis with a view to elongate the life of the banknotes.

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