Soiled Notes need urgent action – Moneylife takes up issues with RBI

Another negative fallout of demonetisation is the proliferation of soiled and tattered notes in smaller denominations such as Rs10, 20 and Rs50. This is a menace in certain areas but since the problem is largely in non-metros and does not affect the ATM-using crowed, it has remained largely out of the public eye. After all, nobody cares about the issues affecting rural or less privileged classes whose livelihoods are earned in smaller denomination currency. (See feedback on soiled notes at the end of this report).

Based on data gathered through multiple sources, we took up the issue with the Reserve Bank of India (RBI). To his credit, RBI Governor Dr Urjit Patel responded immediately and we had an opportunity to present the data to senior officials. The RBI has assured us of a quick action but officials who spoke to us do not want to be quoted. Let us first look at why the RBI's clean note policy has gone for a toss after demonetisation last year and what can be done about it.

It is now well acknowledged that RBI did not have enough time to prepare for demonetisation and dependence on Rs2,000 notes as the main denomination for re-monetisation was a mistake. So it appears that the printing of Rs2,000 notes has been stopped after 3.8 billion notes were printed. Instead, the printing of new Rs500 notes, which were in acute short supply was cranked up and 18 billion of these notes have now been printed. The printing of Rs500 notes too has stopped. A new denomination of Rs200 has been introduced and adequate supply is expected to be available by the end of October or early November, say RBI sources. The Rs100 and Rs50 denomination is less of a problem in cities, since ATMs require a certain minimum quality to be used for machine counting.

But it is a different story among small traders, vendors and daily wage earners in cities and especially in smaller towns. We have shocking feedback from Amritsar, Goa, South Odisha, Chandigarh, Ranchi and even in Gurgaon, Mumbai suburbs, Chennai and Bengaluru. Someone from Bengaluru even reported getting a patched up Rs100 note from an ATM in the city.


What is the source of soiled and tattered notes? Why is it becoming an issue? As rising public outrage over the deaths and long queues of people waiting to get their own money back during demonetisation was rising, the RBI decided to pump all the currency held in its vaults into the public domain, including the safety reserves as well as 12 billion pieces of soiled and tattered notes that had been collected from banks for destruction. However, even after the currency shortage eased, such soiled notes have not been pulled out for destruction; nor has the fresh stock of soiled notes generated over the last year been picked up for destruction, to avoid shortage.

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 currency, which is widely used. The life of a currency 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.

The problem is made more acute by the Finance Ministry, which takes care of minting of coins. The government has been continuing to mint and dump into the market Rs10 coin with different designs. This is causing panic and confusion among people about the coins being fake. RBI sources are emphatic that there are no fake Rs10 coins, but since designs differ and the government hasn't bothered to clarify and educate people, these coins are taboo in many parts of India, despite the currency shortage.

There is one more issue that the RBI needs to address. With new currency having been announced and introduced in multiple denominations, it has the task of replacing old currency as quickly as it can.  The fact that a Rs500 note is smaller than a Rs100 note is agonizing to the blind and there is a petition started by them to demand quick action by the RBI. According to my sources, there are 105 billion pieces of currency in circulation today of which nearly 55 billion need to be replaced - these include soiled notes and older currency (Rs50 and Rs100 which has multiple designs floating around and newer versions are introduced) that needs to be replaced.

The question then is, why is the RBI not withdrawing old notes fast enough? We understand that the pressure of printing new notes has dwindled so much that the government's spanking new press at Mysuru, which delivered spectacularly during demonetisation, may be largely idle at the end of November.

It is ironical then currency presses are going to be idle, while public outrage over soiled notes is increasing. We understand that the RBI still has its hands full over counting and destroying demonetised currency, because of the government request to check and count it multiple times for fakes.
We now have a strange situation where the RBI is overstocked with new currency, but it is not going out to the public. We understand that after our representation and feedback, instructions have been issued to accelerate replacement, which had slowed down. While we watch what happens, take a look at feedback on currency from across India.



From GOA
I visited Oriental Bank of Commerce, Panaji branch, Goa, to withdraw ?5,000 in 20 September 2017. But most of the ?10 notes were soiled, torn and even burnt, while others had dark marks.
I had to physically sit and remove plenty of soiled, burnt and spoilt notes and get them exchanged from the Bank.
In spite of all the charges levied by banks, why can't banks give clean and usable notes to customers. Why are customers put to such hardships?
                                           -Customer from Oriental Bank of Commerce, Panaji Goa

We in Ponda, Goa fall short of Rs10 and Rs20 rupees notes. Whatever we arrange from banks and petrol pumps are 80% soiled ones. Not much difficulties with Rs100 notes.

Myself is having retail shop and my brother runs a Cyber cafe. We face huge problem with small denominations notes of good quality. Many small tea and snacks hotels too give soiled notes since they do not have or get good  currency notes from banks. High-end customers and hotels may use swipe cards...

There are issues with ATMs as well. Most of d ATMs of different bank do not work or are in bad condition putting customers to lot of hardships. Most of the ATMs do not have security guards although it is mandatory to have one per ATM.

Rs50 was not available for long time and had to take soiled ones. Sometimes small denominations not available from bank like Rs50, Rs20 and Rs10. Of course no change from banks in Goa. I ask my friends to bring better notes from Mumbai.

Goan businesses have adopted a new kind of currency which is totally illegal i.e. coupon system. I wish I knew about this before as I have photographs on my computer.                                                        -Lorna, Secretary, GOACAN

Coins of Rs10 are freely available but not accepted by many.

Not only the notes are dirty and worn out  but some torn stuck with cello tape; also some printed prior to 2005 supposed to be withdrawn from circulation.

Yes, I do face this problem at Ponda Vegetable Market (Sabzi Mandi). There I never get clean currency and unfortunately the vendors are also not in a position to return clean currency notes as change.

Coins of Rs10 is a real problem. Nobody is accepting these coins here in Goa. This happened because some time back a WhatsApp post was viral saying these coins have been withdrawn from circulation.  This created panic and many people deposited these coins in banks in huge number and in all markets of Goa a tourist state these coins are not accepted.

Whenever I have gone to bank, forget clean there is no Rs10, Rs20, Rs50 or Rs100 note in the bank. They give us Rs2,000 or Rs500 notes, which is so difficult to get change.
                                                                       -Bernadine Dcosta (Malad)

At Goregaon when we give Rs500 to any shop or hotel we get soiled old notes of Rs100, Rs50, Rs20 or old coins of Rs10. We have no choice but accept the change.
                                                                       -Anthony Dias (Goregaon)

The currency notes received from taxi and auto drivers, petty traders are mostly soiled ones. Not seen five rupee note since ages.
                                                                                     -DS Ranga Rao

All these notes are terribly dirty and difficult to handle.
                                                                                      - Arun Kumar

There is still shortage of these denominations. Banks are forcing to take only Rs2,000 rupees notes. Now even the Rs500 and Rs2,000 rupees notes are soiled due to poor quality.
Also, there is a big problem of coins, which are plenty with every person and banks are refusing to accept as deposit in account.
The new Rs50 and Rs200 notes are not available in many banks/ branches and even if it is available then it is not given to all. Even worse than ration.
                                                                                     -Eugene Gonsalves
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    Rajendra bahadur Singh

    3 years ago

    It is one of the best way of healping people.I need olmesertan40mg+ hydrchlorothiszide 12.5mg 200tab.

    Mehernosh Dordi

    3 years ago

    RBI must be the most inefficient of all government departments. The full board should be sacked for all the non actions after demonetisation.

    Gopalakrishnan T V

    3 years ago

    Things would go from bad to worse as RBI has been economising on staff and there are reported to be moves to bring in drastic changes in the handling of issue of notes . RBI has reduced its staff strength from 50000 and odd to about 16000 to reduce the cost over a period and the worst affected functions of RBI are Issue of fresh notes and coins and regulation and supervision of banks. The failure of Demonetisation scheme is also due to the failure of RBI is also a fact which for reasons best known only to the authorities are not being even discussed . The notes in circulation are of poor quality and not in adequate quantity as well and there are shortages of small denomination notes in rural semi urban and even urban centres. The banks are getting weak and their services are deteriorating fast as the RBI has weakened its supervisory function and inspection of banks and branches over a period. The customer services in banks which include exchange of soiled and torn notes into fresh notes and other services have been only in paper and the service charges for other routine banking services which were hitherto freely available the banks have introduced heavy fees and customers are literally driven away from premises. Good that Money Life Foundation has been active in taking up the grievances of banking public as the banks and the RBI of late are becoming the worst non performers with their entrusted functions and making the life miserable for banking public .This also results in the weakening of the economy in every sense.

    Parimal Shah

    3 years ago

    The solution for 5 and 10 rupee soiled notes denomination is simple. Gradually remove all soiled notes and replace with equal number of coins of the same denomination. This will also remove the pressure on the printing of currency notes and shift the job to coins mints. Generally, the coins have a much longer life span than the currency notes. Though initially this may involve more expense in the longer term it will save a lot of money.


    3 years ago

    It is not for the government to work out the details. Their work is to introduce a policy. It is for the bureaucracy to implement the policy faultlessly. But you can depend on our bank babus and other bharat babus to mess up implementation and ruin any policy. This is out of selfishness, lack of patriotism and laziness.

    Veeresh Malik

    3 years ago

    The perception that there are way too many soiled and dirty currency notes in the market all over again in India is certainly correct and there is no smoke without fire so pretty much all the points made in the article are correct.

    The larger issue here is the increasing reluctance of a variety of entities to not accept cashless money. Some examples which are true in large and small cities are tolls, parking lots, state government outlets, RTOs, inter-state permits, stamp duty and registration where if you don't pay cash they ask you to bring demand drafts and then make minor changes in the final amount, railway parcel booking, APEDA mandis, etcetc. This is where the State and Central Governments need to make their efforts felt too.

    Banks use ad hoc and arbitrary methods to keep lending rates inflated: RBI Study Group
    Exposing the ad hoc manner used by banks to deviate from specified methodologies for calculating base rate and marginal cost of funds based lending rate (MCLR), a Reserve Bank of India (RBI) study group had said that banks used this to either inflate base rate or prevent it from falling in line with the cost of funds. Also banks, both public sector and private, took almost six months to transmit reduction in MCLR to customers, says the report from an Internal Study Group of the RBI. 
    The Study Group was set up on 24 July 2017 to study the various aspects of the MCLR system from the perspective of improving the monetary transmission and exploring linking of the bank lending rates directly to market determined benchmarks. "The ad hoc adjustments used by banks, included inappropriate calculation of the cost of funds; no change in the base rate even as the cost of deposits declined significantly; sharp increase in the return on net worth out of tune with past track record or future prospects to offset the impact of reduction in the cost of deposits on the lending rate; and inclusion of new components in the base rate formula to adjust the rate to a desired level. The slow transmission to the base rate loan portfolio was further accentuated by the long (annual) reset periods," the Report says.
    According to the Dr Janak Raj headed Study Group, the one year reset clause used by banks impedes monetary transmission as pass through of monetary policy changes to existing floating rate loans. The Study Group has recommended reducing the reset period (for interest rates) to once in a quarter from once in a year on all floating rate loans, retail as well as corporate. 
    It says, "The transmission from the reduction in the MCLR to lending rates occurred with a lag. In the case of private sector banks, it took almost six months for the transmission from the lower MCLR to actual lending rates. However, in the case of public sector banks, the transmission was not complete even after six months."
    "In the absence of any sunset clause on the base rate, banks have been quite slow in migrating their existing customers to the MCLR regime. Most of the base rate customers are retail or small and medium enterprise (SME) borrowers. Hence, the banking sector’s weak pass through to the base rate is turning out to be deleterious to the retail and SME borrowers in an easy monetary cycle. To address this concern, besides immediate recalculation of base rates, banks may be advised to allow existing borrowers to migrate to the MCLR if they so choose to do without any conversion fee or any other charges for switchover on mutually agreed terms. However, after the adoption of an external benchmark from 1 April 2018 as recommended by the Study Group, banks may be advised to migrate all existing benchmark prime lending rate (BPLR), base rate and MCLR borrowers to the new benchmark without any conversion fee or any other charges for switchover on mutually agreed terms within one year from the introduction of the external benchmark, by end March 2019," the Report says.
    As per the Report, transmission to interest rates on outstanding rupee loans was significantly lower than on fresh rupee loans. It says, "The median spread in the case of outstanding rupee loans remained significantly higher than that of fresh rupee loans, reflecting the dominance of base rate loan portfolio in outstanding loans and lagged interest rate reset (normally one year) for
    the existing borrowers under the MCLR system. Spreads on outstanding loans were also more volatile than those on fresh loans."
    "Spreads charged by private sector banks on fresh rupee loans were consistently the largest, followed by public sector banks and foreign banks. Spreads charged varied significantly across banks and also temporally. Spreads of foreign banks were relatively more volatile than those of public and private sector banks," the Report says.
    According to the Dr Janak Raj Study Group, there are four factors affecting monetary transmission. This includes, maturity mismatch and interest rate risk in the fixed rate deposits but floating rate loan profile of banks; rigidity in saving deposit interest rates; competition from other financial saving instruments; and deterioration in the health of the banking sector.
    A major factor that impeded transmission was the maturity profile of bank deposits, the report says, adding, deposits with maturity of one year and above constituted 53% of banks’ total deposits at end-March 2016, most of which were at fixed rates of interest. 
    "Another source of weak transmission was rigidity in interest rates on banks’ saving deposits, which remained notoriously stubborn even as the policy repo rate and interest rates on term deposits moved in either direction. The third factor, which hindered monetary transmission was the competition that banks faced from other saving instruments. It appears that banks were reluctant to reduce interest rates sharply for fear of losing deposits to other financial saving instruments such as mutual funds and small saving schemes. Although bank deposits have some distinct advantages in the form of stable returns (vis-à-vis mutual fund schemes) and liquidity (vis-à-vis small saving schemes), bank deposits are in a disadvantageous position in terms of tax-adjusted returns in comparison with these schemes. Banks, therefore, often appeared to be reluctant to reduce interest rates on deposits in line with the reduction in the policy rate by the Reserve Bank. These factors imparted rigidity to the liability side of banks’ balance sheet," it says. 
    The Report says as per empirical analysis, the extent of responsiveness of interest earnings and interest expenses to the changes in the policy repo rate is broadly the same, making the net interest margins (NIMs) impervious to monetary policy changes. "The deterioration in the health of banking sector and the expected loan losses in credit portfolios induced large variability
    in spreads in pricing of assets, severely impacting monetary transmission as banks’ NIMs have remained broadly unchanged in the face of large stressed assets. Thus, rigidities on the liability side such as longer-term maturity pattern of deposits with fixed interest rates, along with the expected loan losses on the asset side, have been reflected in higher pricing on the asset side, or lending rates," it added.  
    The Study Group also recommends to make it mandatory for banks to display prominently in each branch the base rate and MCLR (tenor-wise) and the weighted average lending rates on loans across sectors separately for loans linked to the base rate and the MCLR. The same information should also be hosted prominently on each bank’s website. It suggest that RBI to prescribe format and manner in which a minimum set of standardised data needs to be displayed in branches and hosted on banks’ websites.
    The Study Group also observed that internal benchmarks such as the base rate and MCLR have not delivered effective transmission of monetary policy. "Arbitrariness in calculating the base rate and MCLR and spreads charged over them has undermined the integrity of the interest rate setting process. The base rate and MCLR regime is also not in sync with global practices on pricing of bank loans. The Study Group has, therefore, recommended a switchover to an external benchmark in a time-bound manner," the Report says.
    In July 2010, the RBI introduced base rate system to ensure that the banks do not lend below a certain benchmark. However, from 1 April 2016, the base rate system was replaced by MCLR that  comprises marginal cost of funds, negative carry because of cash reserve ratio (CRR), operating costs, and tenor premium. Any change in key reference rates such as the repo rate, brings about changes in the marginal cost of funds and affects the MCLR. The MCLR prevailing on the date of first disbursement (whether partial or full) remains applicable till the next reset date, irrespective of the changes in the benchmark during the interim period.  
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    B. Yerram Raju

    3 years ago

    Most of us respect ET and an article by Ms. Mythili Bhoosnurmut in ET yesterday on the RBI Study Report would only embolden banks to gag the customers!!

    Rajah M E

    3 years ago

    Ya, Absolutely true, All the Banks in India are doing Mosquito works to us.


    3 years ago

    thanks for doing good for human benefit one more thing to gone unnoticed is while we apply for property mortgage loan banks asking third party NOC (society committee) I am not understanding why so while before dispersing loan amount they keep all original documents under their custody.


    3 years ago

    This is fake news publication! In industry, its commonly called - passing the buck. Now does it need to be said who is passing... er.. the filthy dirty 'gas' here? I sense of Nazi or Fasci or Nazi-Fasci odours someparts of once great India

    vivek dantkale

    3 years ago

    In most cases:
    Bigger the entity..
    Bigger the Bastard-quotient

    Samir Kazi

    3 years ago

    First of all, do you think RBI was sleeping till now and just woken up ? No, They wont help. RBI only helps banks get stronger. For example, did anyone do simple calculation on home loans interest rate and then compared the interest rates banks give its customers? Do this calculation and you will realise. They say they charge 8 or 9% interest rate on home loans. So for example, if anyone takes home loan of Rs. 50 lakh then the interest should be Rs. 4.5 lakhs. So actually we should be paying bank 54 to 55 lakhs on that loan. Do we pay that much or we pay close to 20 lakhs or more approx? Same thing, if anyone keeps 50lakhs in bank, how much interest banks give us? Think and you will understand how governments and central banks make banks richer rather than their citizens.


    Narasimha Pingili

    In Reply to Samir Kazi 3 years ago

    Your argument is not correct. The rate that they quote is the annual rate. If you repay the loan at theh end of one year, then what you say is correct. But if the loan gets repaid over a 10 or 15 year period then the bank charges the interest on the outstanding balance every year.

    Narasimha Pingili

    3 years ago

    RBI will not intervene actively. There is no incentive for them to do so. Only a strong public forum like yours can expose the misdeeds of the banks, corporates and RBI. The forums exposing such misdeeds should be strengthened and members should voice their misgivings more vigorously.

    Sucheta Dalal

    3 years ago

    Request all of you who feel shocked about this to sign this petition :

    Also, if you are a borrower and would like to be a part of our action to get justice, do write to us at [email protected] - there is no cost involved ONLY benefit. But you may have to agree to join the petition and give us details of your case in a short simple affidavit. The amount saved would run into lakhs at the end of a long 10 year tenure

    happy happy

    3 years ago

    Fleecing of banks & more so Pvt banks is a widely known fact. Thanks same is now acknowledged by RBI study group. Not passing MCLR is now blatantly followed by all. Unlike IRDA, banking ombudsman RBI is very poor & doesn't use it powers has only emboldened banks. RBI doesn't bother / respond/ act over retail banking consumers. Let RBI act, act, act fast & wake up fm it's current slumber

    sohan modak

    3 years ago

    Arguments by Krishnan, Gopalamurthy and Krishnamurthy, together would constitute a direction for new policy. Firstly, all banks with NPAs lasting over 18 months should be closed down/merged among themselves so that the bug does no spread. If merged, they should have a two year leeway to recover without permission to lend, after which they should be either closed down
    or continued, depending respectively, on non-recovery or recovery of NPSa.

    R Krishnamoorthy

    3 years ago

    Banks are reluctant to pass on the benefits on lending rates is not new.But in hike in lending rates will be immediately implemented by just displaying a circular on the notice board of branches.Hope this study of RBI helps in the borrowers get the benefits in lending rates as soon as it is mandated.My suggestion will be Banks should not debit the quarterly /monthly interest to the principal outstanding but keep them in interest receivable and collect them as soon as they are due.Branches should strive to keep the interest receivable as low as possible.By debiting to the loan account the banks forget about interest collection and the borrower also is kept in the dark about the quantum.When the debited interest becomes a larger sum he is bound to ward off payments .I fervently appeal to RBI through this forum to switch to older times accounting which will improve customer relationship and also health of the loans instead of EMI method which is also a method to get more interest than that is agreed in the loan agreements.

    P S Krishnan

    3 years ago

    Yes agree Banks are definitely looting borrowers. There are different yardsticks for individuals and corporates'. I met the statutory auditor of a large PSU Bank recently and he spoke about the Banking - Corporate nexus which most of us are aware of. According to him

    1. The bank that he was auditing advanced a loan of Rs 1000 crore to a corporate without any due diligence and documentation. The documentation was received after 1 month after loan disbursal
    2. The Bank in question to boost their loan books and show loan growth had transferred Rs 500 crores to a corporate on 29th March to show growth in advances and the same Rs 500 crores was deposited by the corporate on 2nd April. This is fudging of loan books and accounts. According to the statutory auditor there were multiple such advances to corporates in end-March of the FY involving large branches

    When the statutory auditor questioned about the above 2 incidents he was told that this is standard practice.

    The reason i am sharing this is we need to raise another petition that bars Banks to lend and collect money in the last 15 days of a FY and the 1st 15 days of a new FY. The Banking system lacks transparency and is very corrupt

    Sairam Maganty

    3 years ago

    Banks were Nationalised primarily to prevent exploitation by private financial institutions. If Nationalised banks start fleecing, gouging and looting, there's no purpose and meaning to Nationalisation. Reserve Bank of India was established to check and control banks from exploitation of public by fraudulent means and methods. Finance Ministry is to over see these activities and control exploitation. Now, strangely all the three join hands in fleecing, gouging and looting current account and saving account customers in order to share wealth with big business people , politicians.

    Hari Panikker

    3 years ago

    It is an unacceptable loot. Post demonetization, the public sector banks are behaving like monsters. On the one hand the PM is encouraging the people to use the banks for all transactions and the banks instead of supporting and encouraging the call are exploiting the situation with unjustified levies on transactions and maintenance of minimum balances. I am afraid that the FM is behaving like Shylock and is taking a pound of flesh from every average citizen under the guise of feeding the poor. The rich are made richer and the poor poorer. Time for Modi to take a relook at the Finance Ministry and it's Minister. Mr Jaitley is certainly seen in poor light in his functioning as the FM and Def Min. He is an avoidable baggage for well performing PM.



    In Reply to Hari Panikker 3 years ago

    absolutely right . the FM is really a burden to Modi Govt. The Banks are hijacking the digitization initiative of PM

    N B Ashok Rao

    3 years ago

    Apart from regular interest, they debit other charges such as Folio charge and Godown inspection charges on the loan amounts. These are fixed charges and if your loan is small and you add these to the interest, the rate of interest will be much higher than what was promised at the time of lending. This is cheating, as these charges are not told when taking loan.

    NRI deposits growth in Kerala banks slows
    Though the total Non-Resident Indian (NRI) deposits in Kerala banks for the 12 month period grew from Rs 1,42,668 crore in June 2016 to Rs 1,54,252 crore on June 2017, the rate of growth fell from 22 per cent to eight per cent, data shows.
    The figures were released on Thursday at the quarterly meeting of the State Level Bankers Committee meeting held here.
    According to the figures, the total NRI deposits in the 6,339 branches of various commercial, scheduled and private banks stood at Rs 1,17,349 crore in June 2015, and grew to Rs 1,42,668 crore in June 2016 and to Rs 1,54,252 crore in June 2017.
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.


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