The Reserve Bank of India has decided to withdraw the ₹2000 denomination banknotes from circulation even as it reiterated that these notes will continue to be legal tender. This comes about six-and-a-half years after ₹1000 and ₹500 banknotes were demonetised.
This move is significant, coming as it does just after the state assembly elections in Karnataka, where the Congress won, and in the run-up to elections in other states and the 2024 general elections.
Beginning May 23, RBI said all bank branches will provide the facility of exchange of ₹2000 banknotes into banknotes of other denominations up to a limit of ₹20,000 at a time.
All banks will provide deposit and/or exchange facilities for ₹2000 banknotes until September 30, 2023.
Banknotes of ₹2,000 denomination were introduced after the Government announced on November 8, 2016, that currency notes of denominations of ₹1000 and ₹500 (specified bank notes or SBNs) will be demonetised.
The Government then said the SBNs were being demonetised to fight against corruption, black money and fake currency.
Madan Sabnavis, Chief Economist, Bank of Baroda, said: “This is demonetisation with a human face. People have time until September-end 2023, to deposit and/or exchange ₹2000 banknotes. The common man should not be affected.
Segments most affected
“The three segments which will be affected by this move will be gold & jewellery, real estate and political parties. In the run up to elections, there is always a tendency to stack up cash. ”
RBI said members of the public may deposit ₹2000 banknotes into their bank accounts and/or exchange them for banknotes of other denominations at any bank branch.
Deposit into bank accounts can be made in the usual manner, without restrictions and subject to extant instructions and other applicable statutory provisions.
To ensure operational convenience and avoid disruption of bank branches’ regular activities, RBI said the exchange of ₹2000 banknotes into banknotes of other denominations can be made up to a limit of ₹20,000 at a time at any bank starting from May 23, 2023.
To complete the exercise in a time-bound manner and to provide adequate time to the members of the public, all banks shall provide deposit and/or exchange facilities for ₹2000 banknotes until September 30, 2023.
The central bank said the facility for the exchange of ₹2000 banknotes up to the limit of ₹20,000 at a time will also be provided at its 19 Regional Offices (ROs) having Issue Departments
“The Reserve Bank of India has advised banks to stop issuing ₹2000 denomination banknotes with immediate effect. Members of the public are encouraged to utilise the time up to September 30, 2023 to deposit and/or exchange the ₹2000 banknotes,” per the statement.
Printing stopped in 2018- 19
RBI said the objective of introducing ₹2000 banknotes was met once banknotes in other denominations became available in adequate quantities. Therefore, printing of ₹2000 banknotes was stopped in 2018- 19.
About 89 per cent of the ₹2000 denomination banknotes were issued before March 2017 and are at the end of their estimated life span of 4-5 years.
RBI said the total value of these banknotes in circulation has declined from ₹6.73 lakh crore at its peak of March 31, 2018 (37.3 per cent of Notes in Circulation) to ₹3.62 lakh crore, constituting only 10.8 per cent of Notes in Circulation on March 31, 2023.
“It has also been observed that this denomination is not commonly used for transactions. Further, the stock of banknotes in other denominations continues to be adequate to meet the currency requirement of the public,” it added.
Experts take
Karthik Srinivasan, Senior Vice President of Financial Sector Ratings, ICRA, observed that as witnessed during demonetisation, deposit accretion of banks could improve marginally in the near term. This will ease the pressure on deposit rate hikes and could also moderate short-term interest rates.
Banking expert V Viswanathan said: “This is a good move. But at a time only 10 notes of ₹2,000 can be exchanged. Anyone can come back again as the restriction is “at a time”.
“So crowd management at branches may become difficult. Instead, RBI should permit ₹50,000 at a time. Any amount beyond this should be credited to the properly opened KYC accounts. Also, any person exchanging more than once may be required to comply with due diligence and KYC when amount exceeds ₹50,000.”