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 change.org 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.

Mumbai
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

Kolkata
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
 
Comments
Rajendra bahadur Singh
4 years ago
It is one of the best way of healping people.I need olmesertan40mg+ hydrchlorothiszide 12.5mg 200tab.
Mehernosh Dordi
4 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
4 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
4 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.
ksrao
4 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
4 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.
Free Helpline
Legal Credit
Feedback