CURRENCY MANAGEMENT: AN OVERVIEW
1 CURRENCY MANAGEMENT | RBI
INTRODUCTION
The Reserve Bank of India was established on Apr...
CURRENCY MANAGEMENT: AN OVERVIEW
2 CURRENCY MANAGEMENT | RBI
The functions of the Reserve Bank today can be categorized as...
CURRENCY MANAGEMENT: AN OVERVIEW
3 CURRENCY MANAGEMENT | RBI
“Currency management essentially relates to planning, designi...
CURRENCY MANAGEMENT: AN OVERVIEW
4 CURRENCY MANAGEMENT | RBI
1.1. PREAMBLE
The Preamble of the Reserve Bank of India descr...
CURRENCY MANAGEMENT: AN OVERVIEW
5 CURRENCY MANAGEMENT | RBI
1.3. FUNCTIONS OF DEPARTMENT OF CURRENCY MANAGEMENT
The Depar...
CURRENCY MANAGEMENT: AN OVERVIEW
6 CURRENCY MANAGEMENT | RBI
TABLE I: CURRENCY CHESTS AND SMALL COIN
DEPOTS AS AT END-DECE...
CURRENCY MANAGEMENT: AN OVERVIEW
7 CURRENCY MANAGEMENT | RBI
As per the Section 23 of The RBI Act, the Reserve Bank’s affa...
CURRENCY MANAGEMENT: AN OVERVIEW
8 CURRENCY MANAGEMENT | RBI
Subject to the provisions of Section 26, every bank note shal...
CURRENCY MANAGEMENT: AN OVERVIEW
9 CURRENCY MANAGEMENT | RBI
While soiled notes are notes which have become dirty and limp...
CURRENCY MANAGEMENT: AN OVERVIEW
10 CURRENCY MANAGEMENT | RBI
are removed to an issue office. Currency chests thus obviate...
CURRENCY MANAGEMENT: AN OVERVIEW
11 CURRENCY MANAGEMENT | RBI
FIGURE 1.1: FLOW OF NOTES AND COINS
The currency chests main...
CURRENCY MANAGEMENT: AN OVERVIEW
12 CURRENCY MANAGEMENT | RBI
the position for the Bank as a whole is arrived at. If there...
CURRENCY MANAGEMENT: AN OVERVIEW
13 CURRENCY MANAGEMENT | RBI
A part of the gold stock is recorded as a distinct item on t...
CURRENCY MANAGEMENT: AN OVERVIEW
14 CURRENCY MANAGEMENT | RBI
and reissuables and coins at all the Issue Offices and monit...
CURRENCY MANAGEMENT: AN OVERVIEW
15 CURRENCY MANAGEMENT | RBI
1.10.1. SCOPE
Ensure standardization of printed notes
Supply...
CURRENCY MANAGEMENT: AN OVERVIEW
16 CURRENCY MANAGEMENT | RBI
Full value of the mutilated notes of the above denominations...
CURRENCY MANAGEMENT: AN OVERVIEW
17 CURRENCY MANAGEMENT | RBI
In case of notes up to rupees twenty denomination notes, the...
CURRENCY IN CIRCULATION IN INDIA:
BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES
18 CURRENCY MANAGEMENT | RBI
-
2.1. CURRE...
CURRENCY IN CIRCULATION IN INDIA:
BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES
19 CURRENCY MANAGEMENT | RBI
TABLE 2.2: C...
CURRENCY IN CIRCULATION IN INDIA:
BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES
20 CURRENCY MANAGEMENT | RBI
The amount o...
CURRENCY IN CIRCULATION IN INDIA:
BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES
21 CURRENCY MANAGEMENT | RBI
2.3. CURRREN...
CURRENCY IN CIRCULATION IN INDIA:
BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES
22 CURRENCY MANAGEMENT | RBI
FIGURE 2.3: ...
CURRENCY IN CIRCULATION IN INDIA:
BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES
23 CURRENCY MANAGEMENT | RBI
TABLE 2.6: C...
CURRENCY IN CIRCULATION IN INDIA:
BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES
24 CURRENCY MANAGEMENT | RBI
2.5. CURRENC...
CURRENCY IN CIRCULATION IN INDIA:
BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES
25 CURRENCY MANAGEMENT | RBI
FIGURE 2.4: ...
CURRENCY IN CIRCULATION IN INDIA:
BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES
26 CURRENCY MANAGEMENT | RBI
TABLE 2.9: B...
CURRENCY IN CIRCULATION IN INDIA:
BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES
27 CURRENCY MANAGEMENT | RBI
2.7. COMPARI...
CURRENCY IN CIRCULATION IN INDIA:
BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES
28 CURRENCY MANAGEMENT | RBI
After going ...
CURRENCY IN CIRCULATION IN INDIA:
BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES
29 CURRENCY MANAGEMENT | RBI
FIGURE 2.8: ...
CURRENCY IN CIRCULATION IN JAMMU AND KASHMIR
30 CURRENCY MANAGEMENT | RBI
As on March 31, 2012, 69382 million pieces of ba...
CURRENCY IN CIRCULATION IN JAMMU AND KASHMIR
31 CURRENCY MANAGEMENT | RBI
was 32% and 16% respectively. The ratio of curre...
CURRENCY IN CIRCULATION IN JAMMU AND KASHMIR
32 CURRENCY MANAGEMENT | RBI
TABLE 3.1: DENOMINATION WISE CIRCULATION OF NOTE...
FUNCTIONS OF ISSUE DEPARTMENT
33 CURRENCY MANAGEMENT | RBI
The Department of Currency Management (DCM) of the Reserve Bank...
FUNCTIONS OF ISSUE DEPARTMENT
34 CURRENCY MANAGEMENT | RBI
4.2. PROCESSING AND DISPOSAL OF NOTES
The Bank’s clean note pol...
FUNCTIONS OF ISSUE DEPARTMENT
35 CURRENCY MANAGEMENT | RBI
mechanical details etc. of the CVPS are provided in the CVPS op...
FUNCTIONS OF ISSUE DEPARTMENT
36 CURRENCY MANAGEMENT | RBI
Bank's administrative instructions. To facilitate movement of t...
FUNCTIONS OF ISSUE DEPARTMENT
37 CURRENCY MANAGEMENT | RBI
1. Maintenance of the internal accounts of the Bank in respect ...
FUNCTIONS OF ISSUE DEPARTMENT
38 CURRENCY MANAGEMENT | RBI
7. Disposal of unserviceable items viz. broken wooden boxes, gu...
CURRENCY MANAGEMENT: WAY FORWARD
39 CURRENCY MANAGEMENT | RBI
The future of currency management needs a series of steps an...
CURRENCY MANAGEMENT: WAY FORWARD
40 CURRENCY MANAGEMENT | RBI
5.5. PROXIMITY AND LOGISTICS
Statistical tools like least co...
SURVEY
41 CURRENCY MANAGEMENT | RBI
6.1. RESEARCH DESIGN
Research design is a controlling plan for a marketing research st...
SURVEY
42 CURRENCY MANAGEMENT | RBI
manuals, pamphlets magazines etc. In my report I have also collected information from ...
SURVEY
43 CURRENCY MANAGEMENT | RBI
The questions were limited in numbers simple direct and unbiased technology was adopte...
SURVEY
44 CURRENCY MANAGEMENT | RBI
SURVEY REPORT
The present report is an overview on the results of the survey that was ...
SURVEY
45 CURRENCY MANAGEMENT | RBI
Respondent No.: _______
Name (Optional): _________________________ Age: 18-30 31-50 Ab...
SURVEY
46 CURRENCY MANAGEMENT | RBI
6. How often do you visit the commercial banks for money exchange?
i. Daily
ii. 2-3 ti...
SURVEY
47 CURRENCY MANAGEMENT | RBI
viii. See through register
ix. Color of Note
x. Fluorescence
14. Which denomination of...
SURVEY
48 CURRENCY MANAGEMENT | RBI
54%
31%
15%
AGE GROUP
A1(18-30) A2(31-50) A3(ABOVE 50)
97%
3%
GENDER
MALE FEMALE
6.5. ...
SURVEY
49 CURRENCY MANAGEMENT | RBI
69%
31%
CONVENIENCE OF
LOCATION
YES
NO
After conducting the survey with the customers,...
SURVEY
50 CURRENCY MANAGEMENT | RBI
The respondents were also asked to rate the RBI’s cash counter service which was found...
SURVEY
51 CURRENCY MANAGEMENT | RBI
The customers were are also reluctant in visiting the
bank for the above mentioned fun...
SURVEY
52 CURRENCY MANAGEMENT | RBI
The respondents were asked if commercial banks can replace RBI’s retail function and
s...
SURVEY
53 CURRENCY MANAGEMENT | RBI
In this section the customers were asked about the
security features they look for det...
SURVEY
54 CURRENCY MANAGEMENT | RBI
In this section questions regarding the denomination of coins frequently used, supply ...
SURVEY
55 CURRENCY MANAGEMENT | RBI
Respondent No.: _______
Name (Optional): _________________________ Age: 18-30 31-50 Ab...
SURVEY
56 CURRENCY MANAGEMENT | RBI
The questionnaire for bankers was filled by the
employees of the three banks namely SB...
SURVEY
57 CURRENCY MANAGEMENT | RBI
When asked whether training was imparted to
employees for detecting fake notes, 43 per...
CURRENCY MANAGEMENT: ISSUES
58 CURRENCY MANAGEMENT | RBI
In this report I will be discussing the three major issues in Cur...
CURRENCY MANAGEMENT: ISSUES
59 CURRENCY MANAGEMENT | RBI
Total number of fake notes detected /reported in the state record...
CURRENCY MANAGEMENT: ISSUES
60 CURRENCY MANAGEMENT | RBI
Cooperative banks on July 25, 2011. The revised procedure, as und...
CURRENCY MANAGEMENT: ISSUES
61 CURRENCY MANAGEMENT | RBI
an issue with the availability of fresh currency to general publi...
CURRENCY MANAGEMENT: ISSUES
62 CURRENCY MANAGEMENT | RBI
7.3. MOVEMENT OF TREASURE
FIGURE 7.1: MOVEMENT OF TREASURE
As sho...
CURRENCY MANAGEMENT: ISSUES
63 CURRENCY MANAGEMENT | RBI
7.4. PLASTIC MONEY
Despite the emergence of various alternatives ...
CURRENCY MANAGEMENT: ISSUES
64 CURRENCY MANAGEMENT | RBI
FIGURE 7.2: CURRENCY TO GDP (CURRENT PRICES, FACTOR COST) RATIO
(...
SUGGESTIONS AND RECOMMENDATIONS
65 CURRENCY MANAGEMENT | RBI
Finally concluding the report I would like to in this chapter...
SUGGESTIONS AND RECOMMENDATIONS
66 CURRENCY MANAGEMENT | RBI
should use mass advertising for its campaign and should promo...
SUGGESTIONS AND RECOMMENDATIONS
67 CURRENCY MANAGEMENT | RBI
Banks at key locations should be preferred,
However seeing th...
SUGGESTIONS AND RECOMMENDATIONS
68 CURRENCY MANAGEMENT | RBI
8.4. NOTE REFUND RULES
Though the bank employees scored high ...
SUGGESTIONS AND RECOMMENDATIONS
69 CURRENCY MANAGEMENT | RBI
RBI’s efforts at checking counterfeiting will be effective on...
SUGGESTIONS AND RECOMMENDATIONS
70 CURRENCY MANAGEMENT | RBI
8.9. TIMELY UPDATE OF SECURITY FEATURES
The security features...
ANNEXURE
71 CURRENCY MANAGEMENT | RBI
NOTE REFUND RULES, 2009 Annex- I
In exercise of the powers conferred by the proviso ...
CURRENCY MANAGEMENT:  ISSUES AND CHALLENGES IN THE STATE OF J & K
CURRENCY MANAGEMENT:  ISSUES AND CHALLENGES IN THE STATE OF J & K
CURRENCY MANAGEMENT:  ISSUES AND CHALLENGES IN THE STATE OF J & K
CURRENCY MANAGEMENT:  ISSUES AND CHALLENGES IN THE STATE OF J & K
CURRENCY MANAGEMENT:  ISSUES AND CHALLENGES IN THE STATE OF J & K
CURRENCY MANAGEMENT:  ISSUES AND CHALLENGES IN THE STATE OF J & K
CURRENCY MANAGEMENT:  ISSUES AND CHALLENGES IN THE STATE OF J & K
CURRENCY MANAGEMENT:  ISSUES AND CHALLENGES IN THE STATE OF J & K
CURRENCY MANAGEMENT:  ISSUES AND CHALLENGES IN THE STATE OF J & K
CURRENCY MANAGEMENT:  ISSUES AND CHALLENGES IN THE STATE OF J & K
CURRENCY MANAGEMENT:  ISSUES AND CHALLENGES IN THE STATE OF J & K
CURRENCY MANAGEMENT:  ISSUES AND CHALLENGES IN THE STATE OF J & K
CURRENCY MANAGEMENT:  ISSUES AND CHALLENGES IN THE STATE OF J & K
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CURRENCY MANAGEMENT: ISSUES AND CHALLENGES IN THE STATE OF J & K

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CURRENCY MANAGEMENT: ISSUES AND CHALLENGES IN THE STATE OF J & K

  1. 1. CURRENCY MANAGEMENT: AN OVERVIEW 1 CURRENCY MANAGEMENT | RBI INTRODUCTION The Reserve Bank of India was established on April 1, 1935 under the provisions of the Reserve Bank of India Act, 1934, enacted by the Parliament. The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated. Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India. “The guiding principle for a Central Bank, whatever function or group of functions, it performs at any particular moment, is that it should act only in public interest and without regard to profit as a primary consideration.”
  2. 2. CURRENCY MANAGEMENT: AN OVERVIEW 2 CURRENCY MANAGEMENT | RBI The functions of the Reserve Bank today can be categorized as follows:  Currency management, custodian of forex reserves.  Banker to banks.  Banker to the Central and State Governments.  Management of foreign exchange reserves.  Foreign exchange management—current and capital account management.  Monetary policy.  Regulation and supervision of the banking and non-banking financial institutions, including credit information companies.  Regulation of money, FOREX and government securities markets as also certain financial derivatives.  Debt and cash management for Central and State Governments  Oversight of the payment and settlement systems.  Developmental role.  Research and statistics. FUNCTIONS OF RBI
  3. 3. CURRENCY MANAGEMENT: AN OVERVIEW 3 CURRENCY MANAGEMENT | RBI “Currency management essentially relates to planning, designing, issue and withdrawal of currency, ensuring its integrity, availability and the maintenance of quality”. As per the section 22 of The RBI Act, 1934 [Right to Issue Bank Notes] CURRENCY MANAGEMENT: AN OVERVIEW “The Bank shall have the sole right to issue bank notes in India, and may, for a period which shall be fixed by the Central Government on the recommendation of the Central Board, issue currency notes of the Government of India supplied to it by the Central Government, and the provisions of this Act applicable to bank notes shall, unless a contrary intention appears, apply to all currency notes of the Government of India issued either by the Central Government or by the Bank in like manner as if such currency notes were bank notes, and references in this Act to bank notes shall be construed accordingly.”
  4. 4. CURRENCY MANAGEMENT: AN OVERVIEW 4 CURRENCY MANAGEMENT | RBI 1.1. PREAMBLE The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as: As per the preamble of RBI Act, currency management is the major responsibility of Reserve Bank of India. The Paper Currency Act of 1861 conferred upon the Government of India the monopoly of note issues, thus ending the practice of private and presidency banks issuing currency. Between 1861 and 1935, the Government of India managed the issue of paper currency. In 1935, when the Reserve Bank began operations, it took over the function of note issue from the Office of the Controller of Currency, Government of India. As per the Section 22 of The RBI Act, 1934, The Reserve Bank is the sole authority to issue banknotes in India. Thus RBI holds a Monopolistic Position in issuance of currency. Although one rupee notes and coins of all denominations are issued by the government, they are put into circulation only through the Reserve Bank. Despite increasing spread of technology-driven non-cash modes of payment, the demand for banknotes and coins continues to rise. The RBI Act casts on the Reserve Bank the responsibility of not only providing banknotes in adequate quantity throughout the country, but also maintaining the quality of banknotes in circulation. 1.2. OBJECTIVES OF CURRENCY MANAGEMENT 1. Print notes and mint coins. 2. Distribute adequate notes and coins. 3. Maintain quality of notes in circulation. 4. Withdraw unfit notes from circulation & destroy them. 5. Keep up well secured processes for accounting. "...to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage."
  5. 5. CURRENCY MANAGEMENT: AN OVERVIEW 5 CURRENCY MANAGEMENT | RBI 1.3. FUNCTIONS OF DEPARTMENT OF CURRENCY MANAGEMENT The Department addresses policy and operational issues relating to: 1. Designing of banknotes. 2. Forecasting demand for notes and coins. 3. Ensuring smooth distribution of banknotes and coins throughout the country and retrieval of unfit notes and uncurrent coins from circulation. 4. Ensuring the integrity of bank notes. 5. Administering the RBI (Note Refund) Rules. 6. Reviewing/rationalising the work systems/procedures at the issue offices on an ongoing basis. 7. Dissemination of information on currency related matters to the general public. The Reserve Bank carries out the currency management function through its Department of Currency Management located at its Central Office in Mumbai, 19 Issue Offices located across the country and a sub-office at its Kochi. To facilitate the distribution of notes and rupee coins across the country, the Reserve Bank has authorized selected branches of banks to establish currency chests. As on December 2011, there is a network of 4,221 Currency Chests and 4,018 Small Coin Depots with other banks. CURRENCY CHESTS are storehouses where bank notes and rupee coins are stocked on behalf of the Reserve Bank. The currency chests have been established with State Bank of India, six associate banks, nationalized banks, private sector banks, a foreign bank, a state cooperative bank and a regional rural bank. Deposits into the currency chest are treated as reserves with the Reserve Bank. Withdrawals from the currency chests results in an increase in notes in circulation and thus increase in liability of the issue department. Like currency chests, there are also small coin depots which have been established by the authorized bank branches to stock small coins. The small coin depots distribute small coins to other bank branches in their area of operation.
  6. 6. CURRENCY MANAGEMENT: AN OVERVIEW 6 CURRENCY MANAGEMENT | RBI TABLE I: CURRENCY CHESTS AND SMALL COIN DEPOTS AS AT END-DECEMBER 2011 Category No. of Currency Chests No. of Small Coin Depots Treasuries 11 - State Bank of India 2192 2118 State Bank Associate Banks 778 775 Nationalised Banks 1124 1009 Private Sector Banks 107 107 Co-operative banks 1 1 Regional Rural Banks 3 3 Foreign Banks 5 5 TOTAL 4221 4018 The currency in circulation is backed by eligible assets which consist of gold coin, gold bullion, foreign securities, rupee coin and rupee securities as mentioned in the Section 33 of The RBI Act, 1934.The aggregate value of the gold coin, gold bullion and foreign securities held as assets and the aggregate value of the gold coin and gold bullion so held shall not at any time be less than two hundred crores of rupees. The Department of Currency Management makes recommendations on design of bank notes to the Central Government, forecasts the demand for notes, and ensures smooth distribution of notes and coins throughout the country. It arranges to withdraw unfit notes, administers the provisions of the RBI (Note Refund) Rules, 2009 (these rules deal with the payment of value of the soiled or mutilated notes) and reviews/rationalizes the work systems and procedures at the issue offices on an ongoing basis. For printing of notes, the Security Printing and Minting Corporation of India Limited (SPMCIL), a wholly owned company of the Government of India, has set up printing presses at Nashik, Maharashtra and Dewas, Madhya Pradesh. The Bharatiya Reserve Bank Note Mudran Pvt. Ltd. (BRBNMPL), a wholly owned subsidiary of the Reserve Bank, also has set up printing presses at Mysore in Karnataka and Salboni in West Bengal.
  7. 7. CURRENCY MANAGEMENT: AN OVERVIEW 7 CURRENCY MANAGEMENT | RBI As per the Section 23 of The RBI Act, the Reserve Bank’s affairs relating to note issue and its general banking business be conducted through two separate departments – the Issue Department and the Banking Department. All transactions relating to the issue of currency notes are separately conducted, for accounting purposes, in the Issue Department. The Issue Department is liable for the aggregate value of the currency notes of the Government of India (currency notes issued by the Government of India prior to the issue of bank notes by the Reserve Bank) and bank notes of the Reserve Bank in circulation from time to time and it maintains eligible assets for equivalent value. The assets which form the backing for note issue are kept wholly distinct from those of the Banking Department. The Issue Department is permitted to issue notes only in exchange for notes of other denominations or against prescribed assets. This Department is also responsible for getting its periodical requirements of notes/coins from the currency printing presses/mints, distribution of notes and coins among the public as well as withdrawal of unserviceable notes and coins from circulation. The mechanism for putting currency into circulation and its withdrawal from circulation (that is, expansion and contraction of currency, respectively) is effected through the Banking Department. 1.4. CURRENCY UNIT DENOMINATION The Indian Currency is called the Indian Rupee, and its sub-denomination the Paisa. At present, notes in India are issued in the denomination of Rs. 2, Rs.5, Rs.10, Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1, 000. The printing of Rs.2 and Rs.5 denominations has been discontinued. However, notes in these denominations issued earlier are still legal tender. As per the Section 24, The Reserve Bank is also authorized to issue notes in the denominations of five thousand rupees and ten thousand rupees or any other denomination, but not exceeding ten thousand rupees that the Central Government may specify. 1.5. COIN DENOMINATION Coins in India are available in denominations of 50 paisa, one rupee, two rupees, five rupees and ten rupees. Small coins of 10 paisa, 20 paisa, 25 paisa ceased to be legal tender with effect from June 30, 2011. Coins up to 50 paisa are called “small coins” and coins of Rupee one and above are called “Rupee coins”. As per the provisions of Coinage Act, 1906, coins can be issued up to the denomination of Rs.1, 000.
  8. 8. CURRENCY MANAGEMENT: AN OVERVIEW 8 CURRENCY MANAGEMENT | RBI Subject to the provisions of Section 26, every bank note shall be legal tender at any place in India in payment or on account for the amount expressed therein, and shall be guaranteed by the Central Government. No bank note of the denominational value of five hundred rupees, one thousand rupees or ten thousand rupees issued before the 13th day of January, 1946, shall be legal tender in payment or on account for the amount expressed therein. 1.6. EXCHANGE OF NOTES As per the Section 39 of The RBI Act the Bank can issue rupee coin on demand in exchange for bank notes and currency notes of the Government of India, and can issue currency notes or bank notes on demand in exchange for coin which is legal tender under the Indian Coinage Act, 1906. In exchange for currency notes or bank notes of two rupees or upwards, currency notes or bank notes of lower value or other coins which are legal tender should be supplied in quantities which are required for circulation. If the Central Government at any time fails to supply such coins, the Bank shall be released from its obligations to supply them to the public.
  9. 9. CURRENCY MANAGEMENT: AN OVERVIEW 9 CURRENCY MANAGEMENT | RBI While soiled notes are notes which have become dirty and limp due to excessive use or a two- piece note, mutilated note means a note of which a portion is missing or which is composed of more than two pieces. While soiled notes can be tendered and exchanged at all bank branches, mutilated notes are exchanged at designated bank branches and such notes can be exchanged for value through an adjudication process which is governed by Reserve Bank of India (Note Refund) Rules, 2009. 1.7. CURRENCY DEMAND IN INDIA The Reserve Bank estimates the quantum of banknotes that needs to be printed, based on the requirement for meeting the demand for banknotes based on various factors like inflation, GDP growth, replacement of soiled banknotes and reserve stock requirements. Further, the Reserve Bank also estimates the quantity of banknotes that are likely to be needed denomination-wise and accordingly, places indents with the various printing presses. Banknotes received from banks and currency chests are examined and those fit for circulation are reissued and the others (soiled and mutilated) are destroyed so as to maintain the quality of banknotes in circulation. Among the important determinants of the demand for currency, as we have seen above, the following deserve special attention: (i) volume of transactions demand arising in the formal economy; (ii) transactions demand arising from the underground economy; (iii) precautionary, prudential and speculative demand; (iv) the type and pace of financial innovation and (v) use by other countries. 1.8. CURRENCY CHEST MECHANISM With only 19 regional offices and one sub-office at Kochi, RBI can’t discharge its obligation to the general public for providing adequate supply of good quality of notes and coins. As such it has entered into currency chest mechanism. The currency chests are extensions of Issue Department at various places to meet the currency requirements of the public. When banks and treasuries maintaining such chests need replenishment of their cash balances they draw upon the currency chests for the purpose. Notes and rupee coins which are unfit or cannot be issued for further circulation or are surplus to the requirements of the offices maintaining currency chests are deposited into the chests. When sufficient quantities of non-issuable notes accumulate, they
  10. 10. CURRENCY MANAGEMENT: AN OVERVIEW 10 CURRENCY MANAGEMENT | RBI are removed to an issue office. Currency chests thus obviate the necessity for frequent physical remittances of currency and enable banks/treasuries to work with minimum cash balance of their own. In currency chests, every day, banknotes and rupee coins are deposited and withdrawn to meet the currency requirements of the branch. Every deposit of bank notes into currency chest reduces the liability of Issue Department, while every withdrawal pushes up its liability. Every deposit of Rupee coins increases the assets of Issue Department and the withdrawals reduces its assets. These transactions of withdrawals and deposits are called currency transfer transactions. The minimum amount of such transactions is to be done in multiples of ` 50,000 with a minimum of ` 1, 00,000/-. In terms of Section 33 of RBI Act, the Issue Department should hold assets not less than its liability i.e. the notes in circulation. When currency transfer transactions take place the equilibrium of assets and liabilities get tilted. When there is an increase in liability of Issue Department due to withdrawal of bank notes at currency chests, this is offset by transfer of equivalent amount of bank notes from Banking Department (part of public) to Issue Department. On the other hand if there is a deposit of bank notes into the currency chests, the liabilities are reduced, which is offset by transfer of bank notes from Issue Department to Banking Department. In the case of deposits of rupee coins, the increase in assets is offset by transfer of bank notes from Issue Department to Banking Department. These transfers from Issue Department to Banking Department and vice versa in bank notes at headquarters of issue circle to nullify the changes in equilibrium of assets/liabilities of Issue Department on account of currency transfer transactions at currency chests in the circle are called opposite transfers. To enable the Issue office to effect the opposite transfers, the currency chests shall report the currency transfer transactions daily to their link office located in the headquarters of the Issue Department. The link office will consolidate the transactions in respect of the currency chests in its jurisdiction and submit the statement to Accounts Section daily. The banks not having any currency chest at a place where Issue Office is located, shall have tie-up arrangement with currency chest of other bank for deposit of cash to overcome the situation of adverse balance whenever it arises.
  11. 11. CURRENCY MANAGEMENT: AN OVERVIEW 11 CURRENCY MANAGEMENT | RBI FIGURE 1.1: FLOW OF NOTES AND COINS The currency chests maintained by treasuries will either be withdrawn or converted into banking currency chests. Till such time such currency chests function the treasuries shall report the transactions directly by fax/telegram to the Accounts Section, which will prepare the consolidated statement. In the case of net withdrawal by a bank, the current account of the bank in banking department will be debited and cash will be transferred to Issue Department. In the case of net deposits at currency chests, the opposite transfer will be from Issue Department to Banking Department. The cash will be credited to the current account of the bank concerned. The banking department also puts through transactions with commercial banks, government and other institutions, payments to employees and under remittance facilities scheme. The net receipt/payment will be made by banking department by deposit of surplus notes (over its minimum cash balance) or withdrawal of bank notes from Issue Department. These cash receipts/transfers in bank notes will again tilt the equilibrium of assets and liabilities of Issue Department. Every banking department reports the daily withdrawal/transfer of bank notes to Issue Dept. by telex/fax to DGBA where such daily reports from all offices are consolidated and
  12. 12. CURRENCY MANAGEMENT: AN OVERVIEW 12 CURRENCY MANAGEMENT | RBI the position for the Bank as a whole is arrived at. If there is a net withdrawal from Issue Department, the liability of Issue Department goes up. To balance the increase in liabilities, eligible rupee securities or foreign securities will be transferred from banking department to Issue Department. When there is a net transfer of surplus notes from banking department to Issue Dept. there is a decrease in the liabilities of Issue Department and to balance the decrease in liabilities corresponding assets will be transferred from Issue to banking department. As per the RBI Section 23, 1.8.1. Issue Department – Liabilities The liabilities of the Issue Department equal the currency notes issued by the Government of India before the commencement of operations of the Reserve Bank on April 1, 1935 plus the bank notes issued by the Reserve Bank since then, in terms of section 34(1) of the RBI Act. 1.8.2. Issue Department – Assets In terms of the RBI Act, the eligible assets for the Issue Department comprise  gold coin and bullion  foreign securities  rupee coin  government securities  Internal bills of exchange and other commercial paper. “The issue of bank notes shall be conducted by the Bank in an Issue Department which shall be separated and kept wholly distinct from the Banking Department, and the assets of the Issue Department shall not be subject to any liability other than the liabilities of the Issue Department.”
  13. 13. CURRENCY MANAGEMENT: AN OVERVIEW 13 CURRENCY MANAGEMENT | RBI A part of the gold stock is recorded as a distinct item on the assets side of the Issue Department balance sheet. The remaining stock of gold is reckoned as part of the assets of the Banking Department and is shown under ‘Other Assets’ in the balance sheet of the Banking Department. 1.9. INTEGRATED COMPUTERISED CURRENCY OPERATIONS AND MANAGEMENT SYSTEM (ICCOMS) The Reserve Bank had taken up the task of putting in place an Integrated Computerised Currency Operations and Management System (ICCOMS) comprising 3 components, viz., Currency Chest Reporting System (CCRS), ICCOMS-Issue Department (ICCOMS-ID) and Currency Management Information System (CMIS) in the central office, Issue Departments in regional offices and currency chests maintained by various banks. Main objectives if ICCOMS project Improve Operational Efficiency Faster and Accurate Accounting Improve MIS and Planning Better Monitoring and Control Better Customer Service The project includes computerisation and networking of the currency chests with the Reserve Bank’s Issue offices to facilitate prompt, efficient and error-free reporting and accounting of the currency chest transactions and seamless flow of information between the Issue Departments and the Central Office in a secure manner with proactive monitoring. The ‘live-run’ of CCRS component under Integrated Computerised Currency Operations and Management System (ICCOMS), which commenced last year, has since stabilized and enabled the Reserve Bank to account for currency transfer transactions efficiently. Under the second component, viz., ICCOMS-ID, transactions are put through by all the 19 offices of the Reserve Bank on a ‘straight through put’ process. As part of CMIS, which became operational during the year, the data replicated from all the Issue Offices has enabled the Reserve Bank to identify stock of banknotes and coins, accumulation and disposal of soiled notes, consumption of fresh notes
  14. 14. CURRENCY MANAGEMENT: AN OVERVIEW 14 CURRENCY MANAGEMENT | RBI and reissuables and coins at all the Issue Offices and monitor notes in circulation at any point of time on an all-India basis. 1.9.1. SCOPE OF ICCOMS Planning for Currency Issue Allocation and Distribution of Currency Monitoring of Currency Stock, Distribution, Processing, Accumulation, Forgeries, Reconciliation of Accounts etc. Performance and Exception Monitoring Infrastructure Planning Dissemination of data on currency in circulation on an ongoing basis. 1.10. ISO CERTIFICATION IN CURRENCY MANAGEMENT The Reserve Bank of India has received ISO 9001-2000 Certification for two of its important departments, namely, currency management and banking. ISO 9001-2000 Standard are generic management standards providing an internationally accepted framework for establishing quality management systems with customer focus as the key element. These standards also provide for an inbuilt mechanism for effecting continual improvements in the system. Certification under these standards demonstrates that the management system of the organization conforms to the specified requirements, is capable of consistently achieving the stated service policy and ensuring its effective implementation. In Jammu Office, The Issue department is ISO 9001-2000 certified and it is regularly audited to ensure the level of Certification. The certification review is undertaken by a designated ISO auditor once a year. Also, in order to maintain this certification, regular internal checks/audits are conducted to ensure the quality of services rendered through the department to its customers. In order to be more customer centric the department has made a Citizen’s Charter and is committed to strictly adhere to it for providing superior customer service.
  15. 15. CURRENCY MANAGEMENT: AN OVERVIEW 15 CURRENCY MANAGEMENT | RBI 1.10.1. SCOPE Ensure standardization of printed notes Supply of notes to currency chests Maintain quality of notes in circulation Process of withdrawal of soiled notes Disposal of soiled notes Exchange of notes and coins Adjudication of mutilated notes Monitor and control circulation of counterfeit notes 1.11. NOTE REFUND RULES As per the Section 28, “Notwithstanding anything contained in any enactment or rule of law to the contrary, no person shall of right be entitled to recover from the Central Government or the Bank, the value of any lost, stolen, mutilated or imperfect currency note, provided that the Bank may, with the previous sanction of the Central Government, prescribe the circumstances in and the conditions and limitations subject to which the value of such currency notes or bank notes may be refunded as of grace and the rules made under this proviso shall be laid on the table of Parliament.” Mutilated notes- (1) The adjudication of claims in respect of notes of one rupee, two rupee, five rupee, ten rupee and twenty rupees denomination shall be made in the following manner, namely, If the area of the single largest undivided piece of the note presented is more than 50 percent of the area of the respective denomination, rounded off to the next complete square centimetre, full value on mutilated notes of the above denominations shall be payable; If the area of the largest undivided piece of the note presented is less than or equal to 50 percent of the area of the note, the claim shall be rejected. (2) The payment of claim in respect of note of rupees fifty and above denominations shall be made in the following manner, namely-
  16. 16. CURRENCY MANAGEMENT: AN OVERVIEW 16 CURRENCY MANAGEMENT | RBI Full value of the mutilated notes of the above denominations shall be payable if the area of the single largest undivided piece of the note presented is more than 65 percent of the area of the respective denomination rounded off to the next complete square centimeter; If the undivided area of the single largest undivided piece of the note presented is equal to or more than 40 percent and less than or equal to 65 percent of the area of the respective denomination rounded off to the next complete square centimeter, half the value of the note is payable. If the area of the single largest undivided piece of the note is less than 40 percent, no value shall be payable, and the claim shall be rejected. FIGURE 1.2: SCALE FOR ADJUDICATION OF MUTILATED NOTES If the claim of mutilated notes of rupees fifty to rupees one thousand denomination notes consists of a note composed of two pieces of the same note and the two pieces, individually, have an area equal to or more than 40 percent of the total area of the note in that denomination, then the claim may be refunded for full value and need not be treated as consisting of two tenders for half value. Payment of claim in respect of mismatched note- The payment of claim in respect of a mismatched note may be dealt with as follows, namely-
  17. 17. CURRENCY MANAGEMENT: AN OVERVIEW 17 CURRENCY MANAGEMENT | RBI In case of notes up to rupees twenty denomination notes, the area of the larger of the two pieces presented may be measured and adjudicated If none of the two pieces presented meets the minimum area stipulated the claim shall be rejected. In case of rupees fifty and above denominations, the two pieces may be treated as two separate claims and dealt with accordingly. The details regarding Note Refund Rules are given in the Annex-I.
  18. 18. CURRENCY IN CIRCULATION IN INDIA: BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES 18 CURRENCY MANAGEMENT | RBI - 2.1. CURRENCY IN CIRCULATION IN INDIA The Coinage Act, 2011 was passed by the Parliament and became effective from March 28, 2012. It replaced the Coinage Act, 1906. The Act has re-defined the legal tender character of coins as: (i) `1 and above – up to a sum of `1000, and (ii) 50 paise – up to a sum of `10. Besides consolidating the laws relating to coinage and the Mints, the Act prohibits and imposes a penalty on the melting or destruction of coins, unlawful making, and issue or possession of metal pieces to be used as money. SPMCIL has four mints at Mumbai, Noida (UP), Kolkata and Hyderabad for coin production. There was a marked decline in the volume and value of small coins in circulation in 2011-12 as coins of denomination of 25 paise and below ceased to be legal tender from June 30, 2011. The supply of coins responded to the increase in demand from the public during 2011-12. The demand was greater from the new sources of coin usage such as toll plazas, malls, Delhi Metro Rail, etc. In the wake of increasing numbers of complaints from various trade bodies and members of the public on unavailability of coins, the government has constituted a Committee(Chairman: Dr. K.C. Chakrabarty, Deputy Governor, Reserve Bank) to examine the issues relating to the increase in demand for coins and supply/ distribution bottlenecks. The total value of currency in circulation was ` 10663 billion. TABLE 2.1: BANKNOTES IN CIRCULATION(AS AT END MARCH 2012) BANK NOTES IN CIRCULATION 2010 2011 2012 `2 & `5 7.953 11.116 11.54 `10 18.536 21.288 23.002 `20 2.341 3.02 3.51 `50 4.211 3.196 3.488 `100 13.836 14.024 14.119 `500 7.29 8.906 10.256 `1000 2.383 3.027 3.469 TOTAL 56.549 64.577 69.382 FIGURES ARE IN BILLION PIECES CURRENCY IN CIRCULATION IN INDIA: BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES
  19. 19. CURRENCY IN CIRCULATION IN INDIA: BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES 19 CURRENCY MANAGEMENT | RBI TABLE 2.2: COINS IN CIRCULATION (AS AT END MARCH 2012) COINS IN CIRCULATION 2010 2011 2012 SMALL COIN 54.738 54.797 14.785 `1 29.461 32.675 34.414 `2 13.198 15.342 18.201 `5 7.76 9.07 9.981 `10 0.149 0.3 0.648 TOTAL 105.306 112.184 78.029 FIGURES ARE IN BILLION PIECES FIGURE 2.1: CURRENCY IN CIRCULATION IN INDIA(IN BILLION PIECES) 2.2. CURRENCY IN CIRCULATION IN USA As the nation's central bank, the Federal Reserve issues and processes Federal Reserve notes. The Federal Reserve also distributes coin through depository institutions. The thirty Federal Reserve Bank cash offices provide cash services to approximately 9,200 banks, savings and loans, and credit unions in the United States. The remaining depository institutions obtain currency and coin from correspondent banks rather than directly from the Federal Reserve. 130 135 140 145 150 155 160 165 170 175 180 2010 2011 2012 161.855 176.761 147.411 TOTAL CURRENCY IN CIRCULATION
  20. 20. CURRENCY IN CIRCULATION IN INDIA: BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES 20 CURRENCY MANAGEMENT | RBI The amount of currency in circulation depends on the public's demand for currency. Domestic demand largely results from the use of currency in transactions and is influenced primarily by prices for goods and services, income levels, and the availability of alternative payment methods. Domestic demand for currency, however, accounts for only part of the total demand. Foreign demand is influenced primarily by the political and economic uncertainties associated with certain foreign currencies. Recent estimates show that between one-half and two-thirds of the value of U.S. currency in circulation is held abroad. Some residents of foreign countries hold dollars as a store of value, while others use it as a medium of exchange. Figures in the table below represent the volume of currency in circulation in billions for the three years 2010-2012. As shown the currency in circulation has decreased over the successive years. TABLE 2.3: CURRENCY IN CIRCULATION (AS AT END DECEMBER 2012) $1 $2 $5 $10 $20 $50 $100 $500- $10000 TOTAL 2010 10.3 1 2.4 1.8 7.4 1.5 8.6 0.0005 33 2011 10 0.9 2.4 1.7 7.1 1.4 7.8 0.0005 31.3 2012 9.7 0.9 2.3 1.7 6.5 1.3 7 0.0005 29.5 FIGURES ARE IN BILLION PIECES FIGURE 2.2: CURRENCY IN CIRCULATION IN USA(IN BILLION PIECES) 27 28 29 30 31 32 33 2010 2011 2012 33 31.3 29.5 CURRENCY IN CIRCULATION (IN BILLION)
  21. 21. CURRENCY IN CIRCULATION IN INDIA: BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES 21 CURRENCY MANAGEMENT | RBI 2.3. CURRRENCY IN CIRCULATION IN AUSTRALIA The Reserve Bank is responsible for ensuring that there are sufficient high-quality banknotes in circulation to meet the public's demand. This demand stems from the role of banknotes as a payment mechanism and a store of wealth. To ensure that the public retains confidence in the capacity of banknotes to perform these roles, the Bank:  ensures that sufficient banknotes are printed to meet public demand;  maintains the quality of banknotes in circulation by withdrawing old, used banknotes and replacing them with new banknotes; and  conducts research to ensure that the currency remains secure against counterfeiting. At the end of June 2012 there were around 1.1 billion banknotes worth $53.6 billion on issue. The $50 and $100 banknotes continue to account for the majority of banknotes on issue, with a combined share of 91 per cent of the value and 65 per cent of the number of banknotes in circulation. The value of banknotes on issue increased by 7.1 per cent in 2011/12. Following sharp growth in demand for banknotes immediately after the global financial crisis, and subdued growth in the ensuing two years, growth in banknote demand over the past year has returned to levels consistent with that experienced in the years leading up to the financial crisis. TABLE 2.4 : CURRENCY IN CIRCULATION At end June $5 $10 $20 $50 $100 Total 2009 128.8 95.4 133 474 201 1,032 2010 134.6 98.3 133 474 207 1,047 2011 146.2 101 140 486 212 1,085 2012 147.4 106 149 513 232 1,147 FIGURES ARE IN BILLION PIECES
  22. 22. CURRENCY IN CIRCULATION IN INDIA: BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES 22 CURRENCY MANAGEMENT | RBI FIGURE 2.3: CURRENCY IN CIRCULATION IN AUSTRALIA (IN BILLION PIECES) 2.4. CURRRENCY IN CIRCULATION IN BRAZIL The currency in Brazillian currency Real(R$) issued during the periods from 2008-2011 have been shown in the tables below. The data for the FY 2012 is not yet available. The banknotes issued during the FY 2011 are 5.01 billion pieces which is valued at R$158.42 billions. The coins issued for the same period sums to 18.8 billion pieces which is valued at R$ 4.35 billions. The total currency in circulation has been shown in the graph which has increased over the consecutive years (being 23.8 bn pieces in 2011). TABLE 2.5: BANKNOTES IN CIRCULATION TOTAL BANKNOTES 2008 2009 2010 2011 BRL 100 0.19638 0.2923 0.40614 0.48577 BRL 50 1.42522 1.52264 1.63264 1.68252 BRL 20 0.55645 0.62405 0.6953 0.7428 BRL 10 0.7209 0.6965 0.7313 0.6839 BRL 5 0.3894 0.4146 0.4252 0.4474 BRL 2 0.6725 0.721 0.7695 0.816 BRL 1 0.194 0.162 0.153 0.151 TOTAL BANKNOTES ISSUED 4.15485 4.43309 4.81308 5.00939 FIGURES ARE IN BILLION PIECES 950 1,000 1,050 1,100 1,150 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 1,032 1,047 1,085 1,147 CURRENCY IN CIRCULATION (IN MILLIONS)
  23. 23. CURRENCY IN CIRCULATION IN INDIA: BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES 23 CURRENCY MANAGEMENT | RBI TABLE 2.6: COINS IN CIRCULATION TOTAL COINS 2008 2009 2010 2011 BRL 1 1.279 1.576 1.842 2.113 BRL 0.50 1.31 1.534 1.728 1.926 BRL 0.25 1.5 1.68 1.9 2.092 BRL 0.10 3.65 4.02 4.46 4.96 BRL 0.05 3.22 3.6 4.04 4.5 BRL 0.01 3.2 3.2 3.2 3.2 Commemorative Coin 0.001 0.001 0.001 0.001 TOTAL COIN ISSUED 14.16 15.611 17.171 18.792 FIGURES ARE IN BILLION PIECES FIGURE 2.4: CURRENCY IN CIRCULATION IN BRAZIL(IN BILLION PIECES) 0 5 10 15 20 25 2008 2009 2010 2011 18.31485 20.04409 21.98408 23.80139 CURRENCY IN CIRCULATION (BILLIONS)
  24. 24. CURRENCY IN CIRCULATION IN INDIA: BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES 24 CURRENCY MANAGEMENT | RBI 2.5. CURRENCY IN CIRCULATION IN CHINA The currency in Brazillian currency Renminbi(¥) issued during the periods from 2008-2009 have been shown in the tables below. The data for the FY 2010 and 2011are not yet available. The banknotes issued during the FY 2009 are 202.7 billion pieces which is valued at ¥4096.13 billions. The coins issued for the same period sums to 187.2 billion pieces which is valued at ¥ 45.8 billions. The total currency in circulation has been shown in the graph which has increased over the consecutive years (being 389.8 bn pieces in 2009). However the data for the year 2010 and 2011 is not yet available. TABLE 2.7: BANK NOTES IN CIRCULATION TOTAL BANK NOTES 2008 2009 2010 2011 CNY 100 32.6792 36.6626 NAV NAV CNY 50 2.51 2.8764 NAV NAV CNY 20 2.7555 3.1515 NAV NAV CNY 10 11.078 11.892 NAV NAV CNY 5 10.388 10.794 NAV NAV CNY 2 1.98 1.965 NAV NAV CNY 1 29.7 32.89 NAV NAV CNY 0.5 12.1 13.72 NAV NAV CNY 0.2 10.9 10.75 NAV NAV CNY 0.1 30.2 36.8 NAV NAV CNY 0.05 3.2 3.2 NAV NAV CNY 0.02 9 9 NAV NAV CNY 0.01 29 29 NAV NAV TOTAL 185.4907 202.7015 NAV NAV FIGURES ARE IN BILLION PIECES TABLE 2.8: COINS IN CIRCULATION TOTAL COIN 2008 2009 2010 2011 CNY 1 25.34 28.36 NAV NAV CNY 0.5 16.98 19.1 NAV NAV CNY 0.1 58.4 63.3 NAV NAV CNY 0.05 13.2 13.4 NAV NAV CNY 0.02 29 29 NAV NAV CNY 0.01 33 34 NAV NAV TOTAL 175.92 187.16 NAV NAV FIGURES ARE IN BILLION PIECES
  25. 25. CURRENCY IN CIRCULATION IN INDIA: BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES 25 CURRENCY MANAGEMENT | RBI FIGURE 2.4: CURRENCY IN CIRCULATION IN CHINA(IN BILLION PIECES) 2.6. CURRENCY IN CIRCULATION IN SOUTH AFRICA The Government has given the South African Reserve Bank the sole right to issue banknotes and coin in the country. The Bank must ensure that sufficient new banknotes and coin are available to replace banknotes, which are removed from circulation due to soil levels.The Bank calculates the country’s new banknote and coin requirements on an annual basis. As shown in the table, the bank notes in circulation in the FY 2011 was 1720.05 million pieces which is valued at R 110.03 bn. The coins issued for the same period sum to 1082.4 million pieces which is valued at R 303 mn. The currency in circulation in billions for the four years is shown in the graph. 2008 2009 2010 2011 361.4107 389.8615 0 0 CURRENCY IN CIRCULATION(BILLIONS)
  26. 26. CURRENCY IN CIRCULATION IN INDIA: BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES 26 CURRENCY MANAGEMENT | RBI TABLE 2.9: BANK NOTES IN CIRCULATION NOTES 2008 2009 2010 2011 ZAR 200 178.015 11.305 77.56 69.3 ZAR 100 690.69 1115.09 1145.73 753.92 ZAR 50 466.88 430.94 272.12 215.18 ZAR 20 568.4 455 377.55 320.65 ZAR 10 481.9 444.9 459.7 361 TOTAL 2385.885 2457.235 2332.66 1720.05 FIGURES ARE IN MILLION PIECES TABLE 2.10: COINS IN CIRCULATION TOTAL COINS 2008 2009 2010 2011 ZAR 5 14.2 17.4 14.2 19.4 ZAR 2 26.5 31 32 40 ZAR 1 57 33 61 36 ZAR .50 38 40 46 32 ZAR .20 115 85 70 95 ZAR .10 220 220 180 240 ZAR .05 700 660 620 620 TOTAL 1170.7 1086.4 1023.2 1082.4 FIGURES ARE IN MILLION PIECES FIGURE 2.6: CURRENCY IN CIRCULATION IN SOUTH AFRICA(IN BILLION PIECES) 0 0.5 1 1.5 2 2.5 3 3.5 4 2008 2009 2010 2011 TOTAL CURRENCY IN CIRCULATION(IN BILLIONS) 3.556585 3.543635 3.35586 2.80245 TOTAL CURRENCY IN CIRCULATION(IN BILLIONS)
  27. 27. CURRENCY IN CIRCULATION IN INDIA: BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES 27 CURRENCY MANAGEMENT | RBI 2.7. COMPARISON AND CONCLUSION TABLE 2.11: BASIC STATISTICAL DATA Country GDP (in USD Billions) Population (in Millions) GDP Per Capita USD 2009 2010 2011 2009 2010 2011 2009 2010 2011 1. India 1334 1678 1908 1170 1186 1202 1140 1415 1585 2. China 4412 5790 7298 1331.4 1337.2 1343.5 3689 4330 5432 3. South Africa 284 363 409 490.6 50.1 50.6 5727 7250 8072 4. U.S.A. 13974 14499 15076 306.8 309.4 311.6 45551 46869 48383 5. Australia 999 1246 1500 21.8 22.1 22.4 45,809 56371 67041 6. Brazil 1625 2143 2474 191.5 193.3 194.9 8486 11089 12692 TABLE 2.12: CURRENCY IN CIRCULATION 2008 2009 2010 2011 2012 USA NAV NAV 33 31.3 29.5 AUSTRALIA NAV 1.032 1.047 1.085 1.147 BRAZIL 18.31485 20.04409 21.98408 23.80139 NAV SOUTH AFRICA 3.556585 3.543635 3.35586 2.80245 NAV CHINA 361.4107 389.8615 NAV NAV NAV INDIA NAV NAV 161.855 176.761 147.411 FIGURES ARE IN MILLION PIECES
  28. 28. CURRENCY IN CIRCULATION IN INDIA: BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES 28 CURRENCY MANAGEMENT | RBI After going through the currency in circulation of all the countries and comparing it with the staistics of India, we find that all the countries were much behind in terms of their money circulation. But this is not something of which we should feel proud of. The expenditure incurred on security printing charges in 2011-12 (July-June) increased by `3.3 billion (13.8 per cent) mainly on account of an increase in the supply of banknotes compared to the previous year. Expenditure on remittance of treasure has increased from `455 million in 2010-11 (July– June) to `528 million in 2011-12 mainly due to the increased supply of banknotes/coins to the currency chests. FIGURE 2.7: COST OF SECURITY PRINTING (` BILLIONS) The high currency in circulation in India is is mainly on account of low usage for plastic money (credit cards) and people being resistant to opt for internet banking and avoiding e-transactions. The currency in circulation increases at 10 per cent annually and so does it’s printing cost. Thus an alternative needs to be implemented so that the currency in circulation in India in comparison to other advanced countries comes down.
  29. 29. CURRENCY IN CIRCULATION IN INDIA: BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES 29 CURRENCY MANAGEMENT | RBI FIGURE 2.8: CURRENCY IN CIRCULATION (IN BILLION PIECES) 0 50 100 150 200 250 300 350 400 USA AUSTRALIA BRAZIL SOUTH AFRICA CHINA INDIA CURRENCY IN CIRCULATION(BILLIONS) 2008 2009 2010 2011 2012
  30. 30. CURRENCY IN CIRCULATION IN JAMMU AND KASHMIR 30 CURRENCY MANAGEMENT | RBI As on March 31, 2012, 69382 million pieces of banknotes valuing ` 1052800 crore and 78000 million pieces of coins valuing ` 13500 crore were in circulation as against 64577 million pieces of banknotes valuing ` 935800 crore and 1.12 lakh million pieces of coins valuing ` 12700 crore as of March 31, 2011 recording an increase of 7.5 % (quantity), 12.5 % (value) for notes and decline in 30% (quantity) and increase of 6% (value) for coins. The marked decline in the volume of coins by 30% was attributed to small coins up to 25 paisa which ceased to be legal tender from June 30, 2011 (40 million pieces). In value terms higher denomination notes i.e. ` 100, ` 500 and ` 1000 denominations account for 95% (13%, 48.7% and 32.9%) as on March 31, 2012 as against 95% (15%, 47.5% and 32.5%) as on March 31, 2011. In quantity terms high denomination notes accounted for 40% (20%, 15% and 5%) as on March 31, 2012 as against 40% (21.5%, 14% and 4.5%) as on March 31, 2011. However, small denomination notes formed 60 % each in quantity and 5% each in value of the total notes in circulation as on 31.03.2011 and 31.03.2012 respectively. The share of ` 10 and up to ` 5 notes in circulation as on 31.03.2012 CURRENCY IN CIRCULATION IN JAMMU AND KASHMIR
  31. 31. CURRENCY IN CIRCULATION IN JAMMU AND KASHMIR 31 CURRENCY MANAGEMENT | RBI was 32% and 16% respectively. The ratio of currency with public to GDP comes to about 12- 13%. Incidentally the notes in circulation in 1935 when RBI was established were 124 million pieces valuing `186 crore, increased to ` 1181 crore on 15.08.1947 and the same stood at about 64.6 billion pieces valuing ` 935856 crore as on March 31, 2011 and 69.4 billion pieces valuing ` 1052800 crore (10528 billion) as on 31.03.2012. As on May 3, 2013 total currency in circulation at ` 12143 billion recorded an increase of 10.2% on year to year basis. In the state of J & K, RBI supplied 302 million pieces valuing ` 6100 crores and 297 million pieces valuing ` 7256 crore during 2011-12 and 2012-13 respectively. Besides coins valuing over ` 18.73 crore (68 million pieces) and ` 24.99 crore (78 million pieces) were supplied during the above years respectively. Notes in circulation in the state as on March 31, 2013 were ` 41362 crore (2578 million pieces) as against ` 37750 crore (1906 million pieces) as on the same date last year.
  32. 32. CURRENCY IN CIRCULATION IN JAMMU AND KASHMIR 32 CURRENCY MANAGEMENT | RBI TABLE 3.1: DENOMINATION WISE CIRCULATION OF NOTES FOR MAY 2013 ` 2 ` 5 ` 10 ` 20 ` 50 ` 100 `500 `1000 TOTAL PIECES(in millions) TOTAL VALUE(in` billions) A. CURRENCY 1015 526 - 2461 7656 - 12799 1917 - 68799 955 - 97814 607 - 15141 08149 - 31936 1495 - 16072 6533 -2312.404786 -479.4858012 B. 1. NOTE STOCK 2620 000 59400 00 15810 000 10060 000 50032 00 83890 00 10051 400 102.9024 201.4108 2. EXCHANGE NOTES 80 1070 0 23418 4774 719 49659 8 35029 6 20219 0 1.088615 0.42741695 3. CHEST NOTES 3500 1781 697 20814 700 18233 000 13839 290 36028 031 27528 925 60026 59 124.231802 24.64361159 4. INVOICED NOTES 1600 4514 00 59556 50 38392 00 59556 50 26923 058 12009 948 23219 80 66.258636 11.5436445 5. GUARANTEE NOTES* - - - - - - - - - - 6. REISSUEABLE NOTES - 13000 7073 13000 34864 7 22319 2 93121 0.685212 0.24037475 7. DEFACED REGISTERED NOTES* - - - - - - - - - - 8. DEFACED UN- REGISTERED NOTES* - - - - - - - - - - RETIRED NOTES* - - - - - - - - - - TOTAL OF B 5020 4863 797 41534 097 37894 047 29868 659 11382 8334 48501 361 18671 350 295.166665 56.99584779 CIRCULATION NOTES(PIECES)(A- B) 1010 506 - 2948 1453 - 16952 6014 - 10669 4002 - 12768 3266 - 16279 36483 - 36786 2856 - 17939 7883 -2607.571451 -536.481649 CIRCULATION NOTES(VALUE) - 1007 845 1956 4838 99923 251 26300 436 67877 980 13921 15724 25153 7624 13386 7908 1990.179916 403.8632411
  33. 33. FUNCTIONS OF ISSUE DEPARTMENT 33 CURRENCY MANAGEMENT | RBI The Department of Currency Management (DCM) of the Reserve Bank located at Central Office, Mumbai, takes policy decisions on the designs of bank notes, forecasts the demand for notes and coins, ensures the smooth distribution of bank notes and coins throughout the country, arranges to withdraw unfit notes, administers the RBI Note Refund Rules and reviews/rationalizes the work systems/procedures at the Issue Offices on an ongoing basis. While policy formulation and data monitoring is carried out in the Department of Currency Management, operational work is conducted by the Issue Departments of the Bank currently located in 18 centers with responsibility for managing the inventory, distribution and servicing of currency in its respective issue circles. 4.1. CASH DEPARTMENT Cash Department forms part of Issue Department and is responsible for the physical receipt, safe custody and distribution of currency notes, coins and gold. This Department also attends to the work of ensuring quality of notes in circulation. The main functions of Cash Department are: 1. Keeping safe custody of all balances of gold held on Bank's account and Government account as also fresh, re-issuable and non-issuable notes and coins. 2. Receipt of fresh notes and coins from the printing press or the mints against indents placed with them by Central Office. 3. Supply of notes and coins to currency chests in accordance with the programme of remittances drawn up by the Resource Section. 4. Supply of notes and coins to Banking Department and the acceptance of notes and coins from the Department. 5. Provision of exchange facilities to the public including banks, Government bodies etc. with prompt. 6. Examination of notes and coins, destruction of non-issuable notes and remittance of incurrent and withdrawn coins to mints. 7. Providing service according to the extant standards and benchmarks. FUNCTIONS OF ISSUE DEPARTMENT
  34. 34. FUNCTIONS OF ISSUE DEPARTMENT 34 CURRENCY MANAGEMENT | RBI 4.2. PROCESSING AND DISPOSAL OF NOTES The Bank’s clean note policy makes it incumbent on it to ensure good quality of notes in circulation. In terms of Section 27 of the RBI Act 1934, the Bank cannot reissue torn, defaced or excessively soiled notes. To maintain the quality of notes in circulation, fresh note are supplied to currency chests and soiled notes accumulated at currency chests are periodically withdrawn by arranging remittances to the Bank. Soiled notes so received from the currency chests used to be examined manually in the NES. In terms of the current policy such soiled notes are currently processed/sorted by mechanized processing through Currency Verification and Processing Systems (CVPS). 4.2.1. Mechanized processing through Currency Verification and Processing System (CVPS) The Currency Verification and Processing System (CVPS) has been designed for mechanized on-line examination, authentication, counting, sorting and destruction of notes received at the Bank. Such notes may be non-issuable notes received from currency chests, notes received under guarantee, bulk local tenders or notes received over the counters in exchange. The CVPS performs the functions of the note examination sections, verifications sections and retired note vault simultaneously on an on-line basis. The notes fed into the CVPS are sorted into four categories: fit (reissuable) notes, unfit (non- issuable) notes, reject and suspect notes. Notes classified as reject by the CVPS will include defective notes of different types, „doubles‟ (two or more notes stuck together), notes of a different denomination than the one being processed etc. The notes `suspect' will include suspected forgeries not recognized by CVPs, etc. The notes classified as non-issuable will be destroyed on-line under the operations of the CVPS. The CVPS will give a count of reissuable, suspect as well as destroyed notes. The reject notes will have to be separately examined and counted by manual process. Reconciliation of the notes is effected by totaling the reissuable, suspect and destroyed counts given by the CVPS and feeding the number of manually counted reject notes. All the operations will be captured in the computers of the systems and will also yield on-line printouts. The
  35. 35. FUNCTIONS OF ISSUE DEPARTMENT 35 CURRENCY MANAGEMENT | RBI mechanical details etc. of the CVPS are provided in the CVPS operator and supervisor manuals which all the officers and operators should become familiar with. The different modes of running the CVPS machine for processing the notes will be based on Central Office instructions and decided in consultation with GM/DGM. 4.3. RESOURCE SECTION The Resource Section shall attend to the following functions: 1. Permit opening, closing, and shifting of currency chests and small coin depots. 2. Programme remittances of fresh notes and coins to other Issue Offices, currency chests and small coin depots, remittances of soiled notes from chests to Reserve Bank and issue inter chest diversion orders. 3. Supply draft and other remittance forms, cypher code, treasury agencies private check signal book and certain other essential documents and forms to the currency chests. 4. Issue operational instructions to controlling offices of banks, officers in charge of currency chests and small coin depots on matters relating to currency and coinage. 5. Administer Bank’s remittance facilities scheme. 6. Conduct inspection of currency chests, monitor verification of chest balances, etc. 7. Arrange meetings of State Level Security Committee and Standing Committee on Currency Management. 4.4. REMITTANCE SECTION The Remittance Section works in close co-ordination with Resource Section to effect the movement of currency notes and coins to other offices of the Bank, currency chests and small coin depots within the Circle and for receipt of all inward remittances. The Section will function under the charge of an Assistant Manager. He shall ensure that the work in the Section is carried out in accordance with the instructions contained in this Manual, besides the relative provisions in the Central Government Compilation of Treasury Rules, the Railway Coaching Tariff and the
  36. 36. FUNCTIONS OF ISSUE DEPARTMENT 36 CURRENCY MANAGEMENT | RBI Bank's administrative instructions. To facilitate movement of treasure, the Section will carry out the following functions: 1. Liaising and making arrangements with railways/transport operators /container service providers/ air/shipping agencies etc., for inward and outward remittance of treasure. 2. Arranging with the State police for escorts to accompany remittance of treasure and settling the bills submitted by them in this regard. 3. Entering into annual contracts with local firms for providing laborers and transport for handling of note boxes/coin bags and settling their bills. 4. Providing remittance boxes, note cases etc. for packing of remittances by currency chests. 5. Grant of advances to the Bank’s representatives accompanying remittances and for settling the traveling allowance bills submitted by them. 6. Administering the guarantee scheme. 7. Processing the applications made by banks through link offices, treasury agencies through AGs and railways and police escort for reimbursement of expenditure incurred by them on remittance operations. 8. Settling of claims for reimbursement of railway freight/shunting charges and TA/DA of accompanying Press representatives for receipt of fresh notes from Presses. 4.5. ACCOUNTS SECTION The accounting system of the Issue Department has been designed in such a manner that all receipts and issues of notes and coins and each stage of their handling or storage are accounted for under various accounting heads. The credit balances on account of receipts of notes and coins shall be agreed and reconciled with the debit balances under the detailed heads. The Bank is required in terms of Section 53 (1), to prepare and submit to the Central Government its weekly accounts. Keeping this statutory requirement in view, the Accounts Section of Issue Department maintains the books of accounts and generally attends to the following functions –
  37. 37. FUNCTIONS OF ISSUE DEPARTMENT 37 CURRENCY MANAGEMENT | RBI 1. Maintenance of the internal accounts of the Bank in respect of bank notes and coins. 2. Accounting of and responding to currency transfer transactions reported by currency chests maintained by banks through their link offices and those reported directly by the Government treasury offices. 3. Accounting of transactions in respect of remittances between Issue Offices and currency chests including inter-chest and inter-circle remittances. 4. Preparation of weekly abstracts of circulation notes account and rupee coin account. 5. Reconciliation of the balances held in currency chests as per prescribed periodicity. 6. Verification of periodical balance confirmation certificates submitted by currency chests. 7. Monitoring reporting of currency transfer and remittance transactions by currency chests and charging penal interest for delayed/wrong reporting of currency transfer transactions, shortage/misappropriation of chest balances and other such irregularities. 8. Annual closing of Bank’s accounts relating to Issue Department. 4.6.RECORD SECTION The Records Section attends to maintenance, preservation and destruction of records, besides maintaining the Cash Department stores. It will arrange for purchase of stores required by Cash Department annually within the budget provision. The functions of the section include - 1. Receipt and dispatch of letters pertaining to Issue Department. 2. Maintenance of record room of Issue Department, library books, bullion van other dead stock and payment of insurance premium. 3. Matters connected with Police Guards. 4. Purchase and maintenance of note counting/bundling machines, CCTV and all other machines required for Cash Department and Cash Department stores. 5. Procurement of stationery items for Issue Department. 6. Awarding service contracts for maintenance of vault doors/bins, note counting/bundling machines, CCTV and other machines.
  38. 38. FUNCTIONS OF ISSUE DEPARTMENT 38 CURRENCY MANAGEMENT | RBI 7. Disposal of unserviceable items viz. broken wooden boxes, gunny bags, steel strips, note briquettes, etc. 8. Maintaining petty cash. 9. Other miscellaneous work - payment of telephone bills, newspaper bills/courier bills for office use. 10. Reimbursement of telephone charges, cost of brief case etc. cost for Issue and Cash Department Officers.
  39. 39. CURRENCY MANAGEMENT: WAY FORWARD 39 CURRENCY MANAGEMENT | RBI The future of currency management needs a series of steps and innovations to be incorporated so as to make it efficient with optimum use of resources and information technology. Some key points in this regard are discussed below: 5.1. VOLUME OF NOTES IN CIRCULATION In order to promote the use of plastic money in India, it is very important that the volume of notes in circulation be contained within a limit and reduced substantially. Then only Indian economy can shift to non-cash instruments. 5.2. COIN CIRCULATION Many a times it happens that shopkeepers are out of change and offer sweets in return and consumers also don’t bother to ask for change. This clearly shows that still there is a shortage of supply of coins in the market though 78 billion pieces were supplied in 2012. The increasing demand of coins and their lack of shortage results in the origins of black market dealers. So order to meet the growing demands of coins, coin dispenser machines should be installed in banks for customers for easy availability. Also new ATMs installed should have a built in function to disburse coins along with cash. 5.3. REVIEW OF SECURITY FEATURES Security features of the notes should be enhanced and modernized in such a way that their duplication is impossible. However the security features should be updated timely so that genuine notes stays ahead of the counterfeit notes. New technological innovations should be implemented in case of security features. 5.4.CONCEPT OF HUBS Apart from currency chests, there should be potential hubs for supplying banknotes and coins at key locations so that the banks are able to meet their cash requirements from these hubs apart from currency chest branches which a fixed limit of banknotes and coins. This will also reduce the cost of transportation involved in the transfer of treasure. CURRENCY MANAGEMENT: WAY FORWARD
  40. 40. CURRENCY MANAGEMENT: WAY FORWARD 40 CURRENCY MANAGEMENT | RBI 5.5. PROXIMITY AND LOGISTICS Statistical tools like least cost method (LCM), Voyle’s approximation method should be used so as to determine the optimum transportation routes for movement of treasure from presses and mints to RBI and from RBI to currency chest. This will not only reduce the cost of transportation, but will also set most logical route for transferring treasure. 5.6. DIRECT REMITTANCES FROM THE PRESSES The notes and coins from the presses and mints are supplied to RBI Offices which are then supplied to currency chests and public. However if the remittances are directly transferred from the presses/mints to the currency chests then the four step verification can be reduced to only two step verification, one at the press/mint and the other at the respective currency chest. RBI can perform the role of supervisor in this case with conducting regular inspections. 5.7. POLYMER NOTES Cost and longevity are important issues in currency management. After due consideration, and in consultation with the Government, the Reserve Bank has decided to introduce one billion pieces of `10 banknotes on polymer substrate on a field trial basis in a limited launch in five cities. While cleanliness and durability are seen as the major advantages of polymer, the carbon footprint associated with production, use and disposal of polymer notes is an important issue. Available information indicates that polymer banknotes (and the waste from production) can be granulated and recycled into useful plastic products such as compost bins, plumbing fittings and other household and industrial products. Considering the relatively longer life of polymer notes and their amenability to re-cycling, the “carbon footprint” of polymer notes vis-à-vis paper banknotes is likely to be on the plus side. 5.8. CLEAN NOTE POLICY All the banks who are not adhering to the RBI’s clean note policy should be strictly penalized.
  41. 41. SURVEY 41 CURRENCY MANAGEMENT | RBI 6.1. RESEARCH DESIGN Research design is a controlling plan for a marketing research study in which the methods and procedures for collecting and analyzing the information to be collected is specified. The research undertaken was exploratory in nature as it was a first step in a research process. It focused on the discovery of ideas and was generally based on secondary data. Universe: It refers to the total of items or units in any field of survey or inquiry. All the people who are insured constitute the universe of my survey. Sample unit: Jammu city is the sample unit. Sample size: Sample size refers to the total number of items about which the information is desired. Sampling technique: The convenient technique was used to collect the data. Tools of analysis: The data collected has been analyzed by means of pie charts, bar charts and column charts using simple mathematical calculations for the accuracy of the search. 6.2. METHODS OF DATA COLLECTION 1. Primary Data: Primary data is defined as the first time data collected. It is new in nature. This type of data is collected directly from the source of information. The techniques, which are involved in collecting the primary data, are personal interview, surveys, questionnaire etc. In my report I have collected data by personal interview and questionnaire. 2. Secondary Data: Secondary data is that type data which somebody else had collected and which had already been passed through the statically process. This indirect information of the data from sources containing past and present information is collected from newspapers, journals, business SURVEY – “The level of awareness about the security features of bank notes and the impact of RBI’s currency exchange facility”.
  42. 42. SURVEY 42 CURRENCY MANAGEMENT | RBI manuals, pamphlets magazines etc. In my report I have also collected information from annual reports and newspapers. 6.3. DEVELOPING THE RESAERCH PLAN Sampling Plan: Sampling can be defined as the section some part of an aggregate or totality on the basis of which judgment or an inference about aggregate or totality is made. The sampling plan helps in decision making. The second stage of this study consists of developing the most efficient plan for gathering the relevant data. The methods for carrying out study are as following: Research Plan: Research Approach that was employed in this particular exercise was survey method. Primary Source: Primary data consists of original information gathered for specific purpose. The primary data is collected through questionnaire. The questionnaire is through common instrument collecting primary collection. We collected the data through questionnaire from different people including patients, their attendants, hospital staff etc. 6.4. RESEARCH INSTRUMENT The research instruments used for collecting the primary data were the questionnaire. 6.4.1. QUESTIONNAIRE The questionnaire was carefully developed tested and debugged before they were administered on a large scale. Each questions contributed to the research objective here questionnaire is structured types means there are concrete, definite and predetermined questions. The questions are presented are exactly same wording and in the same an order to all respondents. The questionnaire had a mix type of open ended, closed ended and multiple choice questions.
  43. 43. SURVEY 43 CURRENCY MANAGEMENT | RBI The questions were limited in numbers simple direct and unbiased technology was adopted. Two sets of questionnaire were prepared, one for the general customers and other specifically for the employees of the three banks. A total of 19 questions were framed for the customers and six questions for the bankers. The questionnaire was designed in such a way so as to get a response which was critical to the overall research. The questions for the customers were deliberately split up into different sections so as to avoid any confusion or sampling errors in the final statistical operations. Overall frequency patterns of the respondents were also taken into account so as to determine the effectiveness of the service. Responses to the security features of the note were asked and responses duly quantified. Questions regarding overall experience were asked and the major contributing factor was also put in and responses were given weightage.
  44. 44. SURVEY 44 CURRENCY MANAGEMENT | RBI SURVEY REPORT The present report is an overview on the results of the survey that was carried out in the frame of the project “CURRENCY MANAGEMENT: ISSUES AND CHALLENGES WITH SPECIAL REFERNCE TO THE STATE OF J&K” on “The level of awareness about the security features of bank notes and the impact of RBI’s currency exchange facility”. The main aim of the survey was to study the impact of RBI’s counter closing, the level of awareness about the security features of note and the money exchange facility of the three banks. The survey also aimed at studying the awareness about the security features of note among the bankers and the knowledge about the Note Refund Rules.
  45. 45. SURVEY 45 CURRENCY MANAGEMENT | RBI Respondent No.: _______ Name (Optional): _________________________ Age: 18-30 31-50 Above 50 Gender: Male Female Occupation: _______________ Directions for the Respondents: Tick Mark the Correct Option. 1. How often do you visit RBI for money exchange? i. Daily ii. 2-3 times a week iii. Weekly iv. Monthly v. Quarterly vi. Semi-annually vii. Annually viii. Never 2. Is the location convenient to you? Yes No 3. Rate the RBI’s currency exchange function. i. Excellent ii. Good iii. Fair iv. Average v. Poor 4. Are you aware of the banks providing currency exchange function? Yes No 5. Do you visit any bank for money exchange? Yes No If yes state the bank ____________________________ QUESTIONNAIRE (This questionnaire is aimed at collecting and analyzing information representing the level of awareness about the security features of bank notes and the impact of RBI’s currency exchange facility for the public. Respondents have been taken from Jammu City in Jammu and Kashmir State.) Section A: Cash Counter Closing Impact Section B: Commercial Banks Exchange Service
  46. 46. SURVEY 46 CURRENCY MANAGEMENT | RBI 6. How often do you visit the commercial banks for money exchange? i. Daily ii. 2-3 times a week iii. Weekly iv. Monthly v. Bi-monthly vi. Quarterly vii. Semi-annually viii. Annually ix. Never 7. Whether this facility is extended by the bank to the customers not having A/c in the respective bank? Yes No Can’t Say 8. Whether a dedicated counter has been set up to provide exchange facility? Yes No 9. Whether cut/soiled/mutilated note exchange facility is available at the bank? Yes No 10. Rate the money exchange facility extended by the commercial banks. i. Excellent ii. Good iii. Fair iv. Average v. Poor 11. Do you think commercial Banks exchange function will be a good alternative? Yes No Can’t Say 12. Are you aware of the RBIs “PAISA BOLTA HAI” campaign? Yes No 13. Tick the security features of a note you usually notice for checking counterfeit notes. i. Mahatma Gandhi Watermark ii. Thickness of paper iii. Security Thread iv. Size v. Number Panel vi. Optically Variable Ink vii. Intaglio printing Section C: Awareness about security features of notes
  47. 47. SURVEY 47 CURRENCY MANAGEMENT | RBI viii. See through register ix. Color of Note x. Fluorescence 14. Which denomination of Coin you frequently use? ` 1 ` 2 ` 5 ` 10 15. Do you get adequate supply of the coins you ask for? Yes No 16. Are you aware of plastic money? Yes No 17. Do you think plastic money will replace cash in near future? Yes No Can’t Say 18. What suggestions can you offer to promote use of plastic money? ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ 19. Can you suggest any measures that the RBI can take to improve the Money Exchange Service in India? ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ Section D: Miscellaneous
  48. 48. SURVEY 48 CURRENCY MANAGEMENT | RBI 54% 31% 15% AGE GROUP A1(18-30) A2(31-50) A3(ABOVE 50) 97% 3% GENDER MALE FEMALE 6.5. DATA ANALYSIS As shown in the questionnaire for customers, there are four sections namely: 6.5.1. Cash Counter Closing Impact 6.5.2. Commercial Banks Exchange Service 6.5.3. Awareness about security features of notes 6.5.4. Miscellaneous 6.5.1. CASH COUNTER CLOSING IMPACT Out of the 150 sample size, the female respondents constituted of only 3 per cent of the total sample population. The reason for this is that only a few women are involved in operating retail shops and thus their strength is less in comparison to 97 per cent for male candidates. Similarly the sample population was divided in three age groups which are shown in the figure. A1 group corresponds to 18-30 class, A2 corresponds to 31-50 class and A3 corresponds to above 50 class group. As shown A1 forms 54 per cent of the total sample size, A2 31 per cent and A3 15 per cent of the sample size.
  49. 49. SURVEY 49 CURRENCY MANAGEMENT | RBI 69% 31% CONVENIENCE OF LOCATION YES NO After conducting the survey with the customers, the part where they were asked about how often they visit RBI’s cash counter it was found that mostly customers visited 2-3 times a week followed by weekly and monthly. There were also customers who have never visited RBI. The mere fact that they were getting coins from their nearby bank where they had their accounts. Location was not an issue for the respondents as majority of them belongs to the Jammu city with 69 per cent considering it to be convenient for their day to day transactions. However people belonging to the far flung areas had an issue with the location which is currently located centrally not easily accessible with 31 per cent of the sample population considering it to be inconvenient. This problem can be overcome if banks at key locations be imparted with such a facility. 14 37 27 26 9 1 9 25 FREQUENCY OF VISIT
  50. 50. SURVEY 50 CURRENCY MANAGEMENT | RBI The respondents were also asked to rate the RBI’s cash counter service which was found to be have been low on performance during the last few months. The reason being the transition phase as RBI might close its retail banking. However the response of the customers was good when it comes to the service quality. On an average the service was rated 3.45 on a scale of one to five. There were 16.7 per cent responses of the total sample who rated the service as Fair, 10.67 per cent rated it to be average and 10 per cent said it was poor, probably because of inadequate supply of coins. 6.5.2. COMMERCIAL BANKS EXCHANGE SERVICE The second section of the questionnaire was getting the information on the level of awareness of the banks providing coins and exchanging soiled/cut/mutilated note exchange facility. There was lack of awareness among the customers in this regard with 78 per cent being unaware as shown in the pie-chart. 0 10 20 30 40 50 EXCELLENT GOOD FAIR AVERAGE POOR EXCELLENT GOOD FAIR AVERAGE POOR Series1 40 43 25 16 15 RBI's RATING YES 22% NO 78% AWARENESS ABOUT BANKS PROVIDING MONEY ECHANGE FACILITY
  51. 51. SURVEY 51 CURRENCY MANAGEMENT | RBI The customers were are also reluctant in visiting the bank for the above mentioned functions probably because of lack of awareness with only 24 per cent of the sample population visiting the banks for the above said function. Of the 44 respondents who visit banks for the coins or exchanging soiled notes, eighteen of them have never opted for such service few of them visited monthly followed by 2-3 times a week, monthly, weekly and lowest for daily as they still consider RBI for such functions. 44 per cent of the customers who visit banks for the above functions were of the view that the facility was not extended to non-customers while only 27 per cent believed that it was. 3 7 5 9 0 0 2 18 5 FREQUENCY OF VISIT TO BANKS YES 24% NO 76% VISIT TO BANK 44% 27% 29% FACILITY EXTENDED TO NON CUSTOMERS NO YES CAN'T SAY
  52. 52. SURVEY 52 CURRENCY MANAGEMENT | RBI The respondents were asked if commercial banks can replace RBI’s retail function and satisfactorily handle it. About 58 per cent responded that it will be a good alternative as they can access nearby banks for such functions. However 36 per cent respondents were not in favor of commercial banks handling such functions as they considered banks to be discriminatory between their customers and the walk-ins. 6.5.3. AWARENESS ABOUT SECURITY FEATURES TABLE 6.1: SECURITY FEATURES Detected without aid of device Detected with aid of device  Watermark  Security Thread  Intaglio  Perfect Register  Identification Mark  Optically variable Ink  Latent Image  Micro lettering  Fluorescence  Optical Fibres YES 29% NO 71% DEDICATED COUNTER YES NO 51%49% CUT/MUTILATED/SOILED NOTE EXCHANGE FACILITY YES NO 58% 36% 6% IS COMMERCIAL BANK A GOOD ALTERNATIVE YES NO CAN'T SAY
  53. 53. SURVEY 53 CURRENCY MANAGEMENT | RBI In this section the customers were asked about the security features they look for detecting forged notes. In order to confuse the customers and to check their familiarity with security features of notes, some of the options added were false like the thickness, size, and color of note as they are not included in the table. Only small portion of the sample population marked them for checking forged notes. The customers considered security thread as the key security feature for detecting forgery, followed by MG watermark and see through register. 6.5.4. MISCELLENEOUS MG WATERM ARK THICKNES S SECURITY THREAD SIZE NUMBER PANEL OPTICALL Y VARIABLE INK INTAGLIO PRINTING SEE THROUG H REGISTER COLOUR OF NOTE FLUORES CENCE Series1 67 18 133 3 4 8 25 65 8 14 0 20 40 60 80 100 120 140 SECURITY FEATURES OF NOTES YES 30% NO 70% PAISA BOLTA HAI CAMPAIGN 0 100 200 `1 `2 `5 `10 Series1 99 105 64 17 DENOMINATIONS USED
  54. 54. SURVEY 54 CURRENCY MANAGEMENT | RBI In this section questions regarding the denomination of coins frequently used, supply of coins and awareness about plastic money. As per the survey conducted coins of denomination ` 1 and ` 2 followed by `5 and ` 10 coins. Regarding the supply of coins the customers were slightly disappointed because of low supply of coins with 58 per cent saying that they weren’t getting adequate supply of coins. This is because of the reason that RBI is undergoing transition of closing of its retail function. The level of awareness among the customers about the plastic money was not that bad with 74 per cent of the sample population being aware and only 26 per cent being unaware. Though familiar with its usage the 35 per cent of the respondents still think that plastic money cannot replace cash in future in INDIA. This percentage of the population belongs to group of people who are risk averse while 34 per cent were of the view that it would and these are the people who are risk takers and want to try new things. 31 per cent said they can’t say anything in this regard and these are the people who are concerned with the security issues involved in the usage of banks and still regard cash as a safe mode of transaction. Thus a lot needs to be done in this area as people still have a negative and ignorant mindset towards the use of plastic money which is still a work in progress. 42% 58% SUPPLY YES NO 74% 26% PLASTIC MONEY AWARENESS YES NO 34% 35% 31% YES NO CAN'T SAY
  55. 55. SURVEY 55 CURRENCY MANAGEMENT | RBI Respondent No.: _______ Name (Optional): _________________________ Age: 18-30 31-50 Above 50 Gender: Male Female Bank: ___________________________ Designation: __________________________ Directions for the Respondents: Tick Mark the Correct Option. 1. Tick the security features of a note you usually notice for checking counterfeit notes. xi. Mahatma Gandhi Watermark xii. Thickness of paper xiii. Security Thread xiv. Size xv. Number Panel xvi. Optically Variable Ink xvii. Intaglio printing xviii. See through register xix. Color of Note xx. Fluorescence 2. Whether any training is imparted to you by your bank for checking fake notes? Yes No 3. Are you aware of the Note Refund rules? Yes No 4. Can you quote any three? i. ____________________ ii. ____________________ iii. ____________________ 5. Are you offering cut/soiled/mutilated note exchange facility at your bank? Yes No 6. Whether you offer money exchange facility to non-customers? Yes No SUGGESTIONS QUESTIONNAIRE FOR BANKERS (This questionnaire is aimed at collecting and analyzing information representing the level of familiarity about the security features of bank notes and the Note Refund Rules. Respondents have been taken from Banks in Jammu City in Jammu and Kashmir.)
  56. 56. SURVEY 56 CURRENCY MANAGEMENT | RBI The questionnaire for bankers was filled by the employees of the three banks namely SBI Hari Market, PNB Canal Road and Axis Bank Bahu Plaza. This questionnaire aimed at knowing the familiarity about the security features of notes and the Note Refund Rules. The analysis of the responses have been shown below. The composition of employees from the three banks is as shown in the figure with 38 per cent from State Bank of India, Hari Market, 33 per cent from the Punjab National Bank, Canal Road and 29 per cent from the Axis Bank, Bahu Plaza. The questions asked to the employees regarding security features of notes was identical with the one asked to customers. However mixed responses were obtained as some of the respondents considered thickness, size and color of the note as one of the security features which were not meant to be. Security thread still is considered to be the mostly observed security feature for detecting forgery. MG WATERM ARK THICKNES S SECURITY THREAD SIZE NUMBER PANEL OPTICALL Y VARIABLE INK INTAGLIO PRINTING SEE THROUG H REGISTER COLOR OF NOTE FLUORESC ENCE Series1 18 15 19 3 14 14 9 2 9 7 0 2 4 6 8 10 12 14 16 18 20 SECURITY FEATURES SBI 38% PNB 33% AXIS 29% BANKS
  57. 57. SURVEY 57 CURRENCY MANAGEMENT | RBI When asked whether training was imparted to employees for detecting fake notes, 43 per cent of the employees weren’t given training of any sort. Though the employees questioned were newly recruited and weren’t involved in money exchange operations still they need to be equipped with the basic fundamentals of banking and well verse with the Note refund Rules. This data reflected in this pie-chart is somewhat different from what actually is. As seen, about 90 per cent of the employees responded that they were aware about the Note refund rules, but looking at the bar chart below, the story is a bit different. There were only three employees who were able to quote at least three rules while maximum weren’t able to quote at the most one. 0 1 2 3 4 5 6 7 8 ZERO ONE TWO THREE ZERO ONE TWO THREE Series1 7 3 5 3 NOTE REFUND RULES QUOTED 0% 57% 43% TRAINING BY BANKS YES NO YES 90% NO 10% AWARENESS ABOUT NOTE REFUND RULES YES NO
  58. 58. CURRENCY MANAGEMENT: ISSUES 58 CURRENCY MANAGEMENT | RBI In this report I will be discussing the three major issues in Currency Management in Jammu and Kashmir which are: 1. Forged Notes 2. Non Availability of Fresh Currency 3. Movement of Treasure 4. Plastic Money 7.1. FORGED NOTES During the year ended March 31,2013, as many as 1398 fake notes were detected in the circle out of which 875 fake notes were reported by the commercial banks i.e.63 % of total which was far below the national average of 93 %.The fake notes had pre-dominance of Rs.100 and Rs.500 denomination respectively at 41 and 47 % during 2012-13. 7.1.1. ISSUES There are 182 branches including currency chests having daily average cash receipts of ` 50 lakh and above duly equipped with Note Sorting Machines. However, only few chests are detecting/reporting fake notes to RBI i.e. J & K Bank -RR Srinagar and Udhampur; SBI- Jammu; PNB- Jammu Main and Oriental Bank of Commerce. None of the other chests/branches have ever reported fake notes to RBI. Fake notes detected/reported by commercial banks in the state amount to only 63% of total notes detected which does not compare favorably with the national average of reporting by commercial banks at 93% during 2011-12. About 48 %of fake notes reported by banks continued to be from 7 branches of ICICI bank alone since 2010-11 followed by Jammu and Kashmir bank at 35 %. UCO Bank and Central Bank of India have never detected and reported fake notes. CURRENCY MANAGEMENT: ISSUES
  59. 59. CURRENCY MANAGEMENT: ISSUES 59 CURRENCY MANAGEMENT | RBI Total number of fake notes detected /reported in the state recorded continuous decline from 2352 fake notes during 2010-11 to 1639 fake notes during 2011-12 and 1398 notes during 2012-13 .Reporting of fake notes by the commercial banks ( 63 % ) has also not been in tune with the national level reporting at 93 % and needs to be pushed up. During 21012-13 commercial banks have reported 875 out of 1398 fake notes detected/reported in the circle. TABLE 7.1: FAKE NOTES REPORTED BY BANKS BANK 2011-12 2012-13 SBI 83 42 J&K BANK 319 183 PNB 31 46 CBI - 4 OBC 16 20 UCO BANK - - SBOP - 04 YES BANK - 01 ICICI 439 575 TOTAL 888 875 RBI(COUNTER+CVPS) 751 523 Total Fake Notes detected in circle 1639 1398 7.1.2. REVISED PROCEDURE FOR REPORTING OF COUNTERFEIT BANKNOTES With a view to address the issues associated with filing of FIRs on detection of forged notes, based on the recommendations of HLG on System & Procedure for Currency Distribution, the following procedure has been finalized by the Bank in consultation with Central Government/State Governments and advised to all Commercial banks, RRBs, Pvt. /Foreign and
  60. 60. CURRENCY MANAGEMENT: ISSUES 60 CURRENCY MANAGEMENT | RBI Cooperative banks on July 25, 2011. The revised procedure, as under, is to be implemented with immediate effect. For detection of fake notes up to 4 pieces in a single transaction: a consolidated report as per the format prescribed should be sent by the Nodal Officer of the bank in each district of operation on behalf of all branches in the district to the Nodal Police Station in that district at the end of the month. Counterfeit notes will also be deposited with the Nodal Police Station. For cases of detection involving 5 or more pieces in a single transaction, FIR is to be lodged with the Nodal Police Station as per jurisdiction. The Regional Office vide letter dated August 1,2011 has advised all controlling heads of the banks operating in Jammu & Kashmir to send district wise consolidated report on monthly basis to the Nodal Police Station with a copy to us. The matter was also effectively taken up during last SCCM and SLBC meetings. However, reporting as per revised procedure was not received from banks. The follow up action by controlling authorities was found lax. Another issue regarding fake notes is that a lot of fake notes are detected during the processing of soiled notes in RBI received from commercial banks. As per the statistics in 2011-12, 678 pieces of fake notes were detected which constituted 4.63 fake notes per million and in 2012-13, the number of pieces of fake notes detected were 420 out of 179.08(million pieces) processed which results in 2.34 pieces of fake notes per million. 7.2. AVAILABILITY OF FRESH CURRENCY As per the RBI’s Clean Note Policy in 1999, it is to be ensured that there is adequate supply of good quality of banknotes/coins to the public, periodically weeding out of soiled notes from the system and facilitating processes to check circulation of fake notes. Several steps have been taken by the Bank for implementation of the Policy which include augmenting supply of banknotes by setting up of Two Banknote presses as subsidiaries of RBI at Salboni and Mysore. Though in the state of J & K, RBI supplied 302 million pieces valuing ` 6100 crores and 297 million pieces valuing ` 7256 crore during 2011-12 and 2012-13 respectively, still there prevails
  61. 61. CURRENCY MANAGEMENT: ISSUES 61 CURRENCY MANAGEMENT | RBI an issue with the availability of fresh currency to general public. This is probably because of the low performance on part of the currency chest branches in collecting soiled notes. Table below show the data for the soiled notes received from the chests. TABLE 7.2: SOILED NOTES RECEIVED FROM CHEST (PIECES IN MILLION) 2011-12 2012-2013 UP TO 50 100 & ABOVE TOTAL UP TO 50 100 & ABOVE TOTAL 93 109 202 105 113 218 GROWTH 3.06% GROWTH 7.92% The target for the soiled notes for 2012-13 was 269 million pieces against the actual performance of 218 million pieces. TABLE 7.3: COMPARATIVE POSITION OF BANKS Bank Chests 2011-12 Share to Total% 2012-13 Share to Total (%) Target(million Pieces) Performance SBI 17 35 17.0% 58 35.35 16.2% JKB 9 140 70.0% 170 156.11 71.5% PNB 4 19 9.5% 29 17.59 8.0% CBI 1 3 1.50% 4 2.92 1.3% OBC 1 3 1.0% 4 3.94 1.8% UCO 1 2 1.0% 4 2.42 1.2% TOTAL 33 202 100.00 269 218.33 100.00
  62. 62. CURRENCY MANAGEMENT: ISSUES 62 CURRENCY MANAGEMENT | RBI 7.3. MOVEMENT OF TREASURE FIGURE 7.1: MOVEMENT OF TREASURE As shown in the figure the movement of treasure is complex process which involves four verification steps. The notes are supplied by the four Note printing Presses two owned by Govt. of India at Nasik(Currency Note Press) ; Dewas(Bank Note Press) set up respectively in 1928 and 1975 and two wholly owned subsidiaries of RBI at Salboni and Mysore both set up in 1995. Coins are minted in four Mints at Alipur (West Bengal), Noida (Delhi), Hyderabad and Mumbai. The notes and coins from the presses and mints are supplied to RBI Offices which are then supplied to currency chests and public. The first verification takes place at the presses and mints when an indent is placed with them from the RBI offices. The second verification takes place at the RBI after the remittance is received. Then when a Currency Chest Bank places an indent with the RBI, third verification takes place at RBI before sending the remittance. Finally the fourth verification takes place at the currency chest branch when the remittance is received. However if the remittances are directly transferred from the presses/mints to the currency chests then the four step verification can be reduced to only two step verification, one at the press/mint and the other at the respective currency chest.
  63. 63. CURRENCY MANAGEMENT: ISSUES 63 CURRENCY MANAGEMENT | RBI 7.4. PLASTIC MONEY Despite the emergence of various alternatives to cash-based transactions (credit/debit cards, cheques, internet-based payments, etc.), currency retains its pre-dominance as the use of currency substitutes is associated with a significantly higher level of literacy, awareness and income than prevailing currently. The use of currency as a mode of transaction is also encouraged by government social sector expenditure as this contributes to increase in cash based transactions, particularly in rural areas. The level of awareness among the customers about the plastic money was not that bad with 74 per cent of the sample population being aware and only 26 per cent being unaware. Though familiar with its usage the 35 per cent of the respondents still think that plastic money cannot replace cash in future in INDIA. This percentage of the population belongs to group of people who are risk averse while 34 per cent were of the view that it would and these are the people who are risk takers and want to try new things. 31 per cent said they can’t say anything in this regard and these are the people who are concerned with the security issues involved in the usage of banks and still regard cash as a safe mode of transaction. Table shows the Currency- GDP ratio from 1971 to 2011. As shown over the years the currency has increased significantly. TABLE 7.4: CURRENCY TO GDP RATIO 1971-80 1981-90 1991-2000 2001-10 2010-11 2011-12 10 10.2 10.5 12.4 13 12.5 The year to year movements in currency-GDP ratio are shown in the chart below which reveal an increasing trend, particularly since mid-1990s. The rise in the Currency-GDP ratio has, interestingly, occurred at about the same time that there have been developments in alternative modes of payments, a marked increase in the proportion of services to GDP, increased opportunity cost and lower transactions costs of holding currency (higher rate of return from bank deposits and a rise in the number of ATMs, respectively).
  64. 64. CURRENCY MANAGEMENT: ISSUES 64 CURRENCY MANAGEMENT | RBI FIGURE 7.2: CURRENCY TO GDP (CURRENT PRICES, FACTOR COST) RATIO (1970-71 to 2010-11) Thus a lot needs to be done in this area as people still have a negative and ignorant mindset towards the use of plastic money which is still a work in progress.
  65. 65. SUGGESTIONS AND RECOMMENDATIONS 65 CURRENCY MANAGEMENT | RBI Finally concluding the report I would like to in this chapter offer a few suggestions regarding Currency Management operations in the state of Jammu and Kashmir regarding factors which are stymying the growth of the state, the availability of fresh currency, the menace of black money, RBI’s retail function etc. Most of the suggestions are derived from the survey conducted through questionnaire, personal interview and observations. The suggestive part consists of the following: 1. Awareness about Security Features of Bank notes 2. Commercial Banks Retail operation 3. Supply of fresh currency 4. Note Refund Rules 5. Incentivizing collection of Forged notes 6. Tackling Menace of Forged Notes 7. Reducing Skepticism among customers 8. Promoting use of Plastic money 9. Timely update security features 10. GPRS enabled Security Vehicles 8.1. AWARENESS ABOUT SECURITY FEATURES OF NOTES After analyzing the responses of the customers and the bankers regarding the security features of bank notes, the data revealed that most customers are still incapable of identifying the genuine note from the fake one because of lack of awareness among them. The “Paisa Bolta Hai” campaign was not much a hit among the general population as only 30 per cent of the sample population was aware of it. Many people still don’t look for any security feature in notes the result of which is that they get fooled by the forged notes. RBI SUGGESTIONS AND RECOMMENDATIONS
  66. 66. SUGGESTIONS AND RECOMMENDATIONS 66 CURRENCY MANAGEMENT | RBI should use mass advertising for its campaign and should promote it at key areas which are vulnerable to such incidents. Bankers who are involved in cash dealing should also be timely inspected in order to find their level of familiarity with the security features as they are the ones who are dealing directly with the public. Moreover banks should place ‘KNOW YOUR BANKNOTE’ at a visible location inside the bank.(Details given in the Annex-III) 8.2. COMMERCIAL BANKS RETAIL OPERATION It’s a good decision as presently the RBI is located centrally in Jammu and it is difficult for some persons to spare time for getting coins, notes and exchanging cut/soiled/mutilated notes at RBI because of locational factors. Thus getting access to this service at their nearby banks would be a wise decision. Presently there are eight banks in J & K who are performing such functions. Four of them who are performing such function in Jammu are: - SBI, Hari Market - PNB, Canal Road - Axis Bank, Bahu Plaza - Canara Bank, Bari Brahmna RBI should follow a parallel transitory phase for which it should along with the commercial banks perform its retail function and the banks should be strictly monitored and this process should continue for at least six months and only when RBI realizes that the customers coming to its cash counter have decreased significantly and the banks are satisfactorily performing the function then only RBI should close its retail function. Banks should be strictly penalized for discrepancies. RBI’s cash counter service was rated 3.45 on a scale of one to five by the customers. So in order to successfully and efficiently transfer its retail function to commercial banks RBI should Advertise the listed banks Run a parallel function along with banks till the time they are able to perform the function satisfactorily. Include more banks to carry on the retail function.
  67. 67. SUGGESTIONS AND RECOMMENDATIONS 67 CURRENCY MANAGEMENT | RBI Banks at key locations should be preferred, However seeing the performance of the three listed banks SBI Hari Market, PNB Canal Road and Axis Bank Bahu Plaza, I would doubt if commercial banks will be able to handle such operations as efficiently as RBI as 44 per cent of the customers who visit banks were of the view that the facility was not extended to non-customers. The banks are being discriminatory when it comes to such services. PNB Canal Road was still not having any dedicated counter for coins, notes and cut/soiled/mutilated notes exchange facility. Banks branches do not distribute coins as it is not an economic activity for them. People near the vicinity of these banks were not aware of such services being offered by the banks and still considered RBI for such transactions. It is therefore advised that RBI should first see the capability of Banks to handle such functions in terms of factors like  Public dealing.  Ample availability of space for setting up counters.  Availability of staff etc. 8.3. SUPPLY OF FRESH CURRENCY Still there are lot of soiled notes in circulation probably because of less reporting of soiled notes by the banks. Again in this regard the customers should be made aware of the note refund rules apart along with security features. Banks should be willing to accept soiled notes from the public as data shown in Chapter VI reveals that 218 million pieces of soiled notes have been reported by the currency chest branches instead of target of 269 million pieces for 2012-13. Another reason is the lack of awareness among bank employees regarding the Note Refund Rules.
  68. 68. SUGGESTIONS AND RECOMMENDATIONS 68 CURRENCY MANAGEMENT | RBI 8.4. NOTE REFUND RULES Though the bank employees scored high on the note refund rules with 90 per cent aware, they were not able to quote them. There were only three employees out of 21 who were able to quote at least three rules. Maximum weren’t able to quote at the most one. The employees were from SBI Hari Market, PNB Canal Road and Axis Bank Bahu Plaza, the listed branches for carrying out RBI’s retail operation. Again I would like to suggest that every Bank should impart training to its employees in relation to the basic fundamentals of banking and the Note refund rules as they are the ones who are frequently dealing with the customers. The details regarding Note Refund Rules are given in the Annex-I. 8.5. INCENTIVIZING COLLECTION OF FORGED NOTES To address the menace of counterfeit notes, the central bank should incentivize the banks for reporting of counterfeit notes. During 2012-13 commercial banks reported 875 out of 1398 fake notes detected/reported in the circle. The bank wise data has been shown in Chapter VI. 8.6. TACKLING MENACE OF FORGED NOTES Some suggestions for tackling the menace of forged notes are: Awareness and publicity campaigns. Adequate provision of Note Sorting Machines (NSMs). Augmenting the security features. Non-disruptive withdrawal of notes in old series by replacement with notes in new series. ATMs should be equipped with sensors for detecting counterfeit notes. Strengthening security systems at currency chests and more intensive supervision of chests by RBI.
  69. 69. SUGGESTIONS AND RECOMMENDATIONS 69 CURRENCY MANAGEMENT | RBI RBI’s efforts at checking counterfeiting will be effective only if there are equally effective efforts by banks. Banks should ensure that counterfeit notes are promptly detected once they enter the banking system, and that there is prompt and accurate reporting. They should ensure that only clean and genuine notes are issued through their ATMs and over the counters. As currency notes are an integral part of our daily life, we, as users, should understand the various security features of the notes. These features are prominent, and can be easily identified. Enhanced public awareness will by far be the most effective deterrent to counterfeiting. 8.7. REDUCING SKEPTICISM AMONG CUSTOMERS In order to encourage reporting of fake notes by the customers, the banks should be able to convince the customers and try to reduce their doubts pertaining to forgery. This is possible only if the banks are having up to date information regarding the procedures for reporting of counterfeit banknotes. They should actively pass on this information to the customers. Then only the altercations between the bank and the customers can be reduced. 8.8. PROMOTING USE OF PLASTIC MONEY A lot of awareness needs to be imparted to customers regarding the use of plastic money. At the same time cashless transactions should be made secure so as to avoid any incident of fraud which usually occurs at the back end. Customers should be provided some kind of training to use internet banking to avoid phishing attacks. Bulk users of plastic money should be incentivize. The banks must also be educated to promote e-payments; training programs for senior management of the banks will assist in achieving this. It is also further recommended that strategic segments of the economy be the subject of focus first especially the unbanked segment. In that way the vision of reducing the unbanked will be done gradually and systematically.
  70. 70. SUGGESTIONS AND RECOMMENDATIONS 70 CURRENCY MANAGEMENT | RBI 8.9. TIMELY UPDATE OF SECURITY FEATURES The security features of notes should be updated timely and at the same time it should be aggressively advertised so that people are also aware of it. However some of the following steps can be taken in this regard: Security features need to be reviewed and updated from time to time. Take advantage of latest research and technology in the field. Always stay ahead of counterfeiters. 8.10. GPRS ENABLED SECURITY VEHICLES GPRS based Vehicle Tracking System should be installed in vehicles used for sending fresh notes/receiving soiled notes to/from the currency chests so as to keep track of movement of treasure.
  71. 71. ANNEXURE 71 CURRENCY MANAGEMENT | RBI NOTE REFUND RULES, 2009 Annex- I In exercise of the powers conferred by the proviso to section 28, read with clause (q) of the sub- section (1) and (2) of section 58, of the Reserve Bank of India Act, 1934 (2 of 1934) and in supersession of the Reserve Bank of India (Notes Refund) Rules, 1975, except as respect things done or omitted to be done before such supersession, the Central Board with the previous sanction of the Central Government, hereby makes the following rules for specifying the circumstances in, and the conditions and limitations subject to which, the value of lost, stolen, mutilated or imperfect note may be refunded as a matter of grace, namely:-. 1. Short title, application and commencement :- (1) these rules may be called the Reserve Bank of India (Note Refund) Rules, 2009. (2) They shall apply to a note, which is a legal tender on the date of its presentation before the Bank (3)They shall come into force on the date of their publication in the Official Gazette. 2. Definitions:- In these rules, unless the context otherwise requires:- (a) "Act” means the Reserve Bank of India Act, 1934 (2 of 1934); (b) ‘Bank’ means the Reserve Bank of India constituted by section 2 of the Act; (c) "Bank note" means any note issued by the Bank, but does not include a Government note other than one rupees note, which has been deemed to be bank note as per the Notification no. G.S.R 426, dated the 28th March, 1980 issued by the Government of India, Ministry of Finance, Department of Economic Affairs; (d) "Essential features" means the features, including security features, which are necessary for the identification of a note, namely-, (i) The name of the issuing authority in Hindi and/or English, that is; Bank or Government of India, as the case may be;

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