RBI Withdraws ₹2,000 Notes And Implements ₹20,000 Limit For Each Exchange

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Reserve Bank of India (RBI) Allows Deposit and Limited Exchange of ₹2,000 Notes

The RBI has made a significant announcement regarding the withdrawal of ₹2,000 banknotes, providing individuals with options for depositing or exchanging these notes. However, there is now a limit of ₹20,000 for each exchange transaction. Let’s delve into the details.

Withdrawal Process and Exchange Limit

Starting from May 23, 2023, individuals can choose to deposit their ₹2,000 banknotes with banks or exchange them for other denominations. For those opting for exchange, there is a maximum limit of ₹20,000 for each transaction. The usual procedures and rules for depositing and exchanging currency will apply, ensuring a smooth process for individuals.

RBI’s ‘Clean Note Policy’ and Currency Requirements

The RBI justified the withdrawal of ₹2,000 banknotes as part of its “Clean Note Policy.” As of the end of March, there were ₹3.6 lakh crore worth of ₹2,000 banknotes in circulation, accounting for 10.8% of the total notes. This amount is significantly lower compared to the ₹6.7 lakh crore printed after demonetization, which constituted 37.3% of the total notes. The RBI stated that the ₹2,000 denomination is not commonly used for transactions, and an adequate supply of banknotes in other denominations is available to meet the public’s currency needs.

Similarities to Past Note Withdrawals

The RBI likened this exercise to the withdrawal of banknotes with fewer security features in 2013-14. During that time, RBI announced the withdrawal of all banknotes printed before 2005, with a specified timeline for exchange. The deadline was extended a few times until June 30, 2016. However, the notes remained legal tender throughout the process and were only phased out gradually.

Impact on Banking and Interest Rates

Bankers believe that the deposit accretion of banks could see a slight improvement in the near term, similar to the experience during demonetization. This, in turn, may ease the pressure on deposit rate hikes and potentially lead to a moderation in short-term interest rates. Karthik Srinivasan, Senior Vice President of Group Head Financial ICRA Ltd., expressed this sentiment.

Guidelines and Facility Availability

The RBI has issued separate guidelines to banks in relation to the withdrawal of ₹2,000 notes. In addition to bank branches, the 19 regional offices (ROs) of the RBI, with their respective Issue Departments, will also facilitate the exchange of ₹2,000 banknotes up to the limit of ₹20,000 at a time, starting from May 23, 2023. The RBI has also advised banks to discontinue the issuance of ₹2,000 denomination banknotes immediately.

Concerns and Precautions

Some experts raise concerns about the potential loss of confidence in the currency itself due to this decision. Devidas Tuljapurkar highlights the need for necessary precautions to prevent any unintended consequences, such as the misuse of Jan-Dhan accounts for exchange purposes.

With the implementation of the withdrawal and exchange limits, the RBI aims to streamline the currency circulation and meet the public’s currency requirements effectively.