The demand for bank notes and coins is increasing notwithstanding the use of technology driven non-cash modes of payments.India is the largest producer and consumer of currency notes, next only to China.Currency continues to be the dominant means of payment especially among the lower and middle class.
In the recent past, it has been observed that volume/value of notes in circulation was adequate, but the real issue is inadequate small notes/coins. Very often, shopkeepers pay back the balance of Rs 1 to Rs 5, for the cash purchases, in “chocolates” or even compel the public to buy any other item since they do not have small denomination notes/coins. Inadequacy of smaller denomination notes/coins coupled with lack of sufficient distribution mechanism multiplies the problems faced by the public.
As on March, 2015 the value of notes in circulation increased to Rs 14,289 billion with a yearly growth rate of 11.4 per cent and the volume increased to 83.6 billion (growth - 8.1 per cent). That’s may be good enough. However, share of higher denomination notes (Rs 500 and Rs 1,000) is increasing consistently and as on March, 2015 they constituted about 85 per cent in terms of value.
Even in terms of volume, over the two years, the share of Rs 2 to Rs 100 (smaller denomination) has come down from 79.5 per cent to 77.6 per cent, though there is an absolute increase in its volume.
While the total value of coins in circulation increased by 12.1 per cent, in volume terms the increase was 8.0 per cent. In short, the authorities are focusing on the need to meet the total demand for currency notes with higher denomination currencies.
The demand for currency is estimated based on GDP growth prospects, inflation and disposal of soiled/mutilated notes. Effective mechanism put in place coupled with incentives provided to the banks has resulted in disposal of around 15.1 billion pieces of soiled notes during FY 14-15, 0.90 billion more than the previous year. The number of counterfeit notes detected has increased to 5.94 lakh pieces (maximum Rs 500 notes – 2.74 lakh, followed by Rs 100 – 1.82 lakh and Rs 1,000- 1.31 lakh).
In tune with the international practices of not having multiple series of notes simultaneously in circulation, the RBI initiated the process in 2014 of withdrawing notes issued before the 2005 MG series having fewer security features. Also, majority notes have been withdrawn and the final date for withdrawal has been fixed as December 31, 2015.
Certain initiatives like linking shopkeepers / business establishments, toll gate agencies etc to the nearest currency chests for their requirements of coins, organising “Coin Melas” by banks to issue coins directly to the public, establishing coin vending machines by banks to provide coins to public etc are the steps in the right direction, but grossly inadequate.
Equitable distribution
Needless to say, there should be adequate channels for equitable distribution of the notes and coins. Currency chests of the banks and small coin depots are the main channels for distributing the new notes and siphoning of soiled/mutilated notes back to the RBI. In spite of more freedom and incentives provided by the RBI to banks in opening of currency chests, their number is coming down.
On account of prohibitive cost of opening/maintaining currency chests, banks are very reluctant to open new chests and are closing down the existing unviable chests.
The number of chests has come down from 4,426 in 2005 to 4,132 (2015) and small coin depot/sub depots from 4,048 (2005) to 3,813 (2015). The achievement of the objectives of Clean Note Policy is possible only with rapid increase in number of currency chests.
Many banks are now levying heavy service charges on cash deposits basically to dissuade inflow of bulk cash as bank branches do not have adequate disposal mechanism. It is high time to re-look on the need for rapid expansion of number of currency chests.
We can even adopt a kind of while label currency chests, in line with white label ATMs put in place in the recent past, and attempt for increasing the number of currency chests. These white label currency chests can levy fees for the services they render on cost-plus basis and will have wide acceptability.
The regulators are fully awa-re of the issues connected to cu-rrency management. The RBI largely imports the main ingredients required for printing currency. India produces only 5 per cent of the paper required for currency note printing.
Dependence on imports makes the printing process of currency vulnerable in terms of price, quantity and timeliness. “Make in India” is perhaps right step to resolve the issue connected to inadequate currency notes in circulation and the consequent difficulties faced by the common man.
(The writer is a retired public sector bank executive teaches banking in ICICI Manipal Academy (IMA), Bengaluru Mr.K.N.V. Prabhu)
As on March, 2015 the value of notes in circulation increased to Rs 14,289 billion with a yearly growth rate of 11.4 per cent and the volume increased to 83.6 billion (growth - 8.1 per cent). That’s may be good enough. However, share of higher denomination notes (Rs 500 and Rs 1,000) is increasing consistently and as on March, 2015 they constituted about 85 per cent in terms of value.
Even in terms of volume, over the two years, the share of Rs 2 to Rs 100 (smaller denomination) has come down from 79.5 per cent to 77.6 per cent, though there is an absolute increase in its volume.
While the total value of coins in circulation increased by 12.1 per cent, in volume terms the increase was 8.0 per cent. In short, the authorities are focusing on the need to meet the total demand for currency notes with higher denomination currencies.
The demand for currency is estimated based on GDP growth prospects, inflation and disposal of soiled/mutilated notes. Effective mechanism put in place coupled with incentives provided to the banks has resulted in disposal of around 15.1 billion pieces of soiled notes during FY 14-15, 0.90 billion more than the previous year. The number of counterfeit notes detected has increased to 5.94 lakh pieces (maximum Rs 500 notes – 2.74 lakh, followed by Rs 100 – 1.82 lakh and Rs 1,000- 1.31 lakh).
In tune with the international practices of not having multiple series of notes simultaneously in circulation, the RBI initiated the process in 2014 of withdrawing notes issued before the 2005 MG series having fewer security features. Also, majority notes have been withdrawn and the final date for withdrawal has been fixed as December 31, 2015.
Certain initiatives like linking shopkeepers / business establishments, toll gate agencies etc to the nearest currency chests for their requirements of coins, organising “Coin Melas” by banks to issue coins directly to the public, establishing coin vending machines by banks to provide coins to public etc are the steps in the right direction, but grossly inadequate.
Equitable distribution
Needless to say, there should be adequate channels for equitable distribution of the notes and coins. Currency chests of the banks and small coin depots are the main channels for distributing the new notes and siphoning of soiled/mutilated notes back to the RBI. In spite of more freedom and incentives provided by the RBI to banks in opening of currency chests, their number is coming down.
On account of prohibitive cost of opening/maintaining currency chests, banks are very reluctant to open new chests and are closing down the existing unviable chests.
The number of chests has come down from 4,426 in 2005 to 4,132 (2015) and small coin depot/sub depots from 4,048 (2005) to 3,813 (2015). The achievement of the objectives of Clean Note Policy is possible only with rapid increase in number of currency chests.
Many banks are now levying heavy service charges on cash deposits basically to dissuade inflow of bulk cash as bank branches do not have adequate disposal mechanism. It is high time to re-look on the need for rapid expansion of number of currency chests.
We can even adopt a kind of while label currency chests, in line with white label ATMs put in place in the recent past, and attempt for increasing the number of currency chests. These white label currency chests can levy fees for the services they render on cost-plus basis and will have wide acceptability.
The regulators are fully awa-re of the issues connected to cu-rrency management. The RBI largely imports the main ingredients required for printing currency. India produces only 5 per cent of the paper required for currency note printing.
Dependence on imports makes the printing process of currency vulnerable in terms of price, quantity and timeliness. “Make in India” is perhaps right step to resolve the issue connected to inadequate currency notes in circulation and the consequent difficulties faced by the common man.
(The writer is a retired public sector bank executive teaches banking in ICICI Manipal Academy (IMA), Bengaluru Mr.K.N.V. Prabhu)
