After 6 months, RBI still in dark on junked notes

Even six months after the demonetisation exercise, the Reserve Bank of India is yet to complete the accounting of the withdrawn ₹1,000 and ₹500 notes.

The RBI has admitted as much in a 15-page response late in April to questions from the Standing Committee on Finance, headed by veteran Congress MP Veerappa Moily.

During a January meeting on the subject of ‘Demonetisation of Indian currency notes of ₹1,000 and ₹500 and impact thereof’, the panel had asked RBI Governor Urjit Patel to submit written answers to the queries from MPs that he could not answer.

In the note, a copy of which is with BusinessLine, the RBI said that the accounting of the specified bank notes (SBNs) at the currency chests need to be reconciled with the physical cash balances to eliminate accounting errors and possible double counting.

“Till this process is completed, any estimate may not indicate the actual numbers of SBNs that have been returned. RBI is taking all steps to complete the process expeditiously so as to release firm figures of SBNs received at an early date,” the note said.

The central bank also said that as of November 8, 2016, there were 17,165 million pieces of ₹500 and 6,858 million pieces of ₹1,000 notes in circulation, worth ₹15,44,035 crore.

One of the panel members asked the Governor about the process to be followed if, say, ₹14 lakh crore had been deposited in banks. How will the balance of ₹1.4 lakh crore be handled?

The Governor said the Board of the RBI would decide in regard to the transfer of surplus to the government as per the provisions of the RBI Act, after “considering inter alia the accounting and economic principles.”

He maintained that the decision was based on the Centre’s reference that counterfeit notes were being used to finance “subversive activities” and the withdrawal of legal tender status to ₹1,000 and ₹500 notes was seen as a solution to tackle the menace.

Asked about the quantum of counterfeit notes that were in circulation, the RBI said the estimation of it is a “difficult proposition.” However, the RBI cited a study conducted by the Indian Statistical Institute, Kolkata, to say that the value of such notes could be ₹400 crore.

Asked why the ₹2,000 note had been introduced, the RBI noted that when inflation erodes the real value of money, periodic reviews of currency denominations in use are undertaken.

“In that background, introduction of higher denomination notes is a standard practice in managing currency production and logistics. Further, higher denomination has helped remonetisation being much faster by quickly ramping up value,” the note added.

The bank also said that the approval for introduction of the new ₹2,000 and a new design ₹500 was received from the Centre on June 7, 2016 and preparations for printing them had commenced thereafter.

Patel also told the panel that the process of remonetisation is taking place ceaselessly.

“Between November 9, 2016 and March 3, 2017, the notes in circulation have increased by almost ₹9.26 lakh crore, thereby taking the total notes to ₹11.73 lakh crore,” he added.

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