RBI plans trials with one billion pieces; selected bidders fail to meet required specifications

Introduction of plastic banknotes of ₹10 denomination has been delayed due to failure of the selected bidders in meeting the technical specifications, said KC Chakrabarty, Deputy Governor, RBI.

The Deputy Governor observed that the quality of lower denomination notes, especially ₹10, continues to be a cause for concern, possibly due to reluctance/constraints on the part of banks to mop up such notes from circulation.

In its annual report for 2012-13, the central bank had said that it has decided to introduce one billion pieces of ₹10 banknotes on plastic substrate for field trials in five cities — Jaipur, Bhubaneswar, Kochi, Shimla and Mysore — which have been identified because of their geographic and climatic diversity.

Key advantages

One of the advantages of plastic over paper is less soilage, thanks to the smoother surface.

The RBI reasoned that plastic banknotes are cost-effective because they last longer; they create minimal dust and no fibres during printing and handling. They can contain certain security features that are difficult and expensive to counterfeit.

Globally, the cash in circulation to GDP ratio has ranged from 2.5 to 8 per cent whereas in India it has been around 13 per cent due to the predominant usage of cash by a majority of the population

As at March-end 2013, ₹10 notes accounted for about 34 per cent of the total banknotes aggregating 7351.70 crore in circulation. In value terms, ₹10 denomination notes accounted for about 2 per cent of total ₹11,64,800 crore worth of banknotes in circulation.

Distribution

To improve last mile connectivity, the RBI has decided to involve private entrepreneurs in the distribution function.

The cash-in-transit companies/ business correspondents have been allowed to process coins and banknotes, including packaging, sorting and delivery to banks’ customers and for retrieval.

Banks, including urban co-operative banks and regional rural banks, are also being involved to ensure that last mile delivery of cash-related services penetrates throughout the country.

Chakrabarty said the RBI has also initiated a pilot exercise under the lead bank scheme for currency management and it intend to upscale it going forward, based on the experience gained.

As at December-end 2013, the notes in circulation was 7,647 crore pieces valued at ₹12,46,800 crore, while the coins in circulation were around 8,991 crore pieces valued at ₹16,800 crore.

(This article was published on April 24, 2014)
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