The Reserve Bank of India (RBI) has asked all banks to provide facility to exchange soiled notes at all of their branches to all customers irrespective of whether she is an account holder or not. Under RBI rules, banks do not exchange soiled notes unless there is a specific notification from the RBI about their exchange. It may be recalled that the government issues a series of new notes of different denominations - Rs2,000, Rs500, Rs200, Rs100, Rs50, Rs20 and Rs10 as part of the demonetisation exercise.
The life of a note is around one year, after which, if soiled, banks are supposed to exchange the notes when presented to them. However, in the absence of any notification by the RBI, banks refused to exchange the newly introduced currency, even though it was eligible for exchange as per soiled note guidelines. The reason: there was no official circular to this effect.
Similarly, RBI has asked banks to provide the facility to exchange mutilated notes at designated bank branches, including cooperative and regional rural banks. In October 2017, Moneylife had taken up the issue of soiled notes with the then RBI governor Dr Urjit Patel, who had responded to our call and given us an opportunity to present the data to senior officials. RBI had assured us of a quick action at that time. However, it took its own time before coming out with note refund rules.
In the RBI (Note Refund) Rules
), the central bank says, "Only those notes which are mutilated should be examined and adjudicated by the prescribed officer. Soiled notes, which include two piece notes having middle or near middle cut either horizontally or vertically, should be freely accepted and exchanged at all branches including currency chest branch."
"It needs no emphasis that the object of simplification of RBI Note Refund Rules and its extension is to help members of the public exchange the cut/mutilated notes in their possession without difficulty. The designated bank branches should play an active role and ensure that the facility is operated for the benefit of the members of public at large and is not pre-empted by a group of persons," the central bank says.
According to official estimates, nearly 25 billion pieces of soiled notes are in circulation (Rs12 billion reintroduced during demonetisation plus fresh soiled notes generated since then) and the worst denomination is the Rs10 note which is widely used. The life of a currency note is 3.5 years and the RBI has a clear 'Clean note policy' to deal with withdrawal and destruction of notes, which was introduced after severe outrage over tattered currency in the 1990s.
Many people were complaining about inability to exchange soiled notes, including new notes of Rs2,000 and Rs500 denomination from banks in the absence of explicit guidelines or rules from RBI. The central bank had released Rs2,000 currency note during the demonetisation period, while it issued new Rs200 note in September last year. However since there was no provision to exchange new currency notes, people were facing issues.
In its rules, RBI has also clarified on the definition of soiled notes. It says, "Soiled note means a note, which has become dirty due to usage and also includes a two piece note pasted together wherein both the pieces presented belong to the same note, and form the entire note."
However, notes which have turned extremely brittle or are badly burnt, charred, inseparably stuck together and, therefore cannot withstand further handling or which may lose their original identity with the passage of time will not be accepted by the branches for exchange. Such notes will have to be exchanged from the issue department of RBI's currency chest under a special procedure.
According to RBI, the value of the imperfect note may be paid for full value or half value depending upon the condition of the currency. Banks are directed to accept for exchanges notes in the denomination of Rs1, 2, 5, 10, 20, 50, 100, 500, 1,000 (not in circulation at present), 2,000 and such other denominations of notes that may be issued in future.
RBI has divided the currency note denomination in two groups for determining the exchange value based on condition of the note(s). For notes of Re1 to Rs20, if the largest undivided piece is more than 50% of the note area, then full value should be paid to the customer. If the largest undivided piece is less than or equal to 50% of the note area, then the claim would be rejected and the customer will not receive any value.
For currency notes with denomination of Rs50 and above, full value would be paid only of the area of single largest undivided piece of the note is more than 80%. If this area is less than 80% but more than 40% then the customer can receive 50% value of the note. If the area of the single largest undivided piece of the note is less than 40%, no value would be paid, and the claim will be rejected.
In case there are two pieces of the single note, with each having an area equal to or larger than 40%, then the bank is required to pay full value of the note to the customer.