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RBI releases demonetization statement

The RBI released a statement, which revealed that 15.28 lakh crore of the high-value currency that was demonetized in November has returned to the central bank. “Subject to future corrections, based on the verification process when completed, the estimated value of SBNs [specified bank notes] received as on June 30, 2017, is 15.28 trillion,” the RBI said in a report released on Wednesday.

The latest RBI data showed that 98.96% of the withdrawn currency — at the time of demonetization the value of old 500 and 1,000 notes in circulation was 15.44 lakh crore — was deposited with the banks.

Separately, the data showed that the share of the newly introduced 2,000 banknotes in the total value of currency in circulation was 50.2% at end-March 2017.

The central bank was under intense scrutiny since January — after the window for depositing the withdrawn Rs. 500 and Rs. 1,000 banknotes had closed — for details on the extent of currency which was returned to the RBI in the wake of the government’s sudden decision to withdraw high-value banknotes as a means to combating counterfeiting, black money and the financing of terrorist activities.

However it was revealed the amount of counterfeit notes in the system is more than double of what the RBI had estimated in the past, the central bank said. The likely quantum of counterfeit notes in the system is estimated to be Rs 23,235 crores.
A survey conducted by the Reserve Bank of India across over 1000 currency chests throughout the country immediately after the note ban was announced on November 08, 2016, showed that the rate of fake currency note detected per million pieces of notes million pieces of notes processed at the currency chest level was 7.1 pieces for Rs. 500 denomination notes and 19.1 pieces for Rs 1000 denomination.

This could have an impact on bank balance sheet as normal practice, banks bear the cost of counterfeit notes and the RBI even imposes penalty on banks for being lax in detecting them. Given the estimates of fake notes, there could be severe adverse impact on bank balance sheet requiring government intervention.

The central bank also said it was in discussion with the government whether to accept the demonetized notes held by citizens and financial institutions in Nepal. Data in the annual report showed that only 89 million pieces of 1,000 were not deposited.

This could only mean that the demonetization has had a mixed impact on the society. However it is up to the RBI to tackle both the highs and the lows of their move.

 

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