Withdrawing Rs.2000 bank notes from ciculation

 Withdrawing Rs.2000 Bank Notes:  A Welcome Move

Rs.2000 denomination bank note, not in public sight will be officially out of circulation: Reserve Bank of India (RBI) announced on 19 May 2023 that Rs.2000 denomination bank notes, not widely in circulation among public for transactions and with 90% of them been printed six years back, will be withdrawn from circulation in pursuance of its 'Clean Note Policy'. RBI further advised that Rs.2000 bank notes will continue to be a legal tender and the notes can be exchanged for transactions by the public as hitherto. In order to complete the exercise in a time bound manner, RBI requested the public to deposit the said denominated notes with any bank branch or the ROs of RBI (19 in number) either for credit to their bank accounts (no limit) or for exchanging other denominated bank notes in cash (Rs.20000 at a time)

Intention: In this regard, though Rs.2000 bank notes continue as legal tender, the following instructions to banks make the intention of RBI clear. 

• Bank branches have been advised to discontinue issue of the said bank notes to public/other banks/branches with immediate effect. 
• The said denomination will not be uploaded in ATMs/ CDMs and the configuration available for depositing Rs.2000 bank note will be suitably modified to accommodate other denominations. (So credit into accounts, by remitting Rs.2000 bank notes, will be through manual counters only)
• The balance available under Rs.2000 denomination bank notes in the currency chest branches shall be be marked 'unfit (for circulation)' and  kept ready for dispatch to RBI. 
• Amounts (Rs.2000 bank notes) accepted by the banks for exchange/credit to the accounts of customers from 23rd Sep 2023 will not be circulated but will be remitted to the currency chest branches for onward remittance to RBI.

So the Rs.2000 denomination bank note may cease to be a legal tender, if not by 30th Sep 2023 but within a further extended period of 3/6 months thereafter. Hence the transactions amongst public is likely to come down drastically, as and when we are near the first due date for withdrawal of Rs.2000 denomination bank note from circulation, viz. 30th Sep 2023.

Whether issues involved in 2016 will get a repeat:

1. Infrastructure available and time period given: 

When Rs.500 and Rs.1000 notes were demonetized in 2016, two major issues faced were the short time period and the note exchange facility was not available in many bank branches (adequate cash not available for exchange and shortage of man power). This time RBI has given a time frame of more than four months and one can reasonably expect an extension of time, if the exercise is not complete by then. So adequate time is given. Clarity needed: Though all bank branches have been included and even BCs are permitted to exchange two notes at a time, small branches may not have the man power and other denomination bank notes for exchange. It will be better if RBI increase the ceiling for exchange in cash to Rs.50,000 in major bank branches, currency chest branches and in the 19 ROs of RBI. This will reduce the pressure on small branches, the need for a retail customer to visit the branch for exchange of cash more than once (Rs.20,000 only can be withdrawn at a time), etc. 

There is no restriction on the amount to be remitted in to the accounts of the customers. But the issue that may come up is that while the customer may have an account with X branch of a bank, X branch may not be able to accept cash beyond a point, due to its size and cash retention limit fixed for the branch. RBI may think of permitting inter branch transfers from bigger branches/ currency chest branches of other banks, which can accept cash and pass it on to small branches, which maintain the customer's account. (Due diligence can still be performed as the cash accepting branches have to comply with Cash Transaction Reporting (CTR) and Suspicious Transaction Reporting (STR) requirements, where applicable)

2. Hardships faced by small vendors/traders: Last time digital transfers were unknown. With UPI transactions taking place for smallest amount and in remote corners of the country, small vendors are unlikely to face any major issues this time. Moreover, not many Rs.2000 denomination notes, one notice in the shops that one trades. 

3. Credits into PMJDY accounts/ Basic Savings accounts: The balances in the PMJDY/ basic savings accounts swelled during last demonetization. RBI has advised clearly the banks that the usual limit for accepting credits into the account (like maximum cash remittance/ balance/total credits into the account) continues. Hence the banks are put on alert to ensure that the credits in to these accounts are monitored, in case of unusual large credits beyond that is permissible.

My views: As RBI said, printing of Rs.2000 Denomination bank note was done in 2016, to meet the currency requirement of the economy after the withdrawal of legal status tender of both Rs.500 and R.1000 banknotes in circulation at that time. Overtime, banknotes in other denominations, much sought after by public, is made available in adequate quantities. Rs.2000 banknotes, forming part of 10.8% of notes in Circulation now as against 37.3% of the notes in circulation in 2018, are not commonly used by public in P2P, P2C, C2P transactions. It is always found difficult to do a transaction by tendering Rs.2000 and ask for a balance, especially if the involved transaction is less than a few hundred rupees. Digital transactions after the advent of UPI, making NEFT available for 24/7 have reduced the need for carrying cash, especially the higher denominations. As the purpose of introduction of the Rs.2000 banknote is served and general public is not seen suffering in the absence of the said higher denomination bank notes in  circulation, I favor the decision of RBI. The only request to the bankers at large is - please make the exchange/credit into account as seamless and as pleasant an experience as possible.

Regards

V.Viswanathan

20th May 2023