RBI explains note ban and measures taken to offset currency crunch

The Reserve Bank of India has come out with an explanation on the demonetisation exercise stating that it was intended to nullify the effect of excessive amounts of fake and illegal currency notes that have entered the financial system.

RBI said incidence of fake Indian currency notes in higher denomination has increased exponentially and hence the Specified Bank Notes (Cessation of Liabilities) Ordinance 2016

While for ordinary persons, the fake notes look similar to genuine notes, even though no security feature has been copied, these fake notes were used for antinational and illegal activities. High denomination notes have been misused by terrorists and for hoarding black money.

Since India continues to be a cash-based economy the circulation of fake Indian currency notes continue to be a menace. The scheme to withdraw legal tender character of the old bank notes in the denominations of Rs500 and Rs1,000 was introduced in order to contain the rising incidence of fake notes and black money, RBI stated in a release.

Under the scheme, the legal tender character of the bank notes in denominations of Rs500 and Rs1,000 issued by the Reserve Bank of India till 8 November 2016 (Specified Bank Notes) were withdrawn.

However, these SBNs were allowed to be exchanged for value at RBI offices till 30 December 2016 and till 25 November 2016 at bank branches / post offices and deposited at any of the bank branches of commercial banks/regional rural banks / co-operative banks (urban co-operative banks and state co-operative banks) or at any head post office or sub-post office during the period from 10 November 2016 to 30 December 2016.

The facility for exchange / deposit of SBNs stands closed with effect from 31 December 2016.'

In terms of the Specified Bank Notes (Cessation of Liabilities) Ordinance 2016, with effect from 31 December 2016, the Specified Bank Notes shall cease to be the liabilities of the Reserve Bank of India and shall cease to have the guarantee of the central government.

A grace period has been provided during which the Specified Bank Notes can be deposited at five RBI Offices (Mumbai, New Delhi, Chennai, Kolkata, and Nagpur) in accordance with the ordinance by Indian citizens who make a declaration that they were outside India between November 9 and 30 December, 2016, subject to conditions or any class of persons for reasons that may be specified by notification by the Central Government.

The Reserve Bank, if satisfied after making the necessary verifications, that the reasons for failure to deposit the notes till 30 December 2016 are genuine, will credit the value of notes in the KYC (Know Your Customer) compliant bank account of the tenderer.

Holding the specified banknotes (SBNs) for the purpose of deposit by Resident Indian citizens who were abroad during 9 November 2016 to 30 December 2016 and non-resident Indian citizens who were abroad during 9 November 2016 to 30 December 2016 is permissible during grace period.

With effect from 2 January 2017 resident Indian citizens who were abroad during 9 November 2016 to 30 December 2016 can avail this facility up to 31 March 2017 and non-resident Indian citizens who were abroad during this period can avail of this facility up to 30 June 2017.

While there is no monetary limit for exchange for the eligible resident Indians, the limit for NRIs will be as per the relevant FEMA Regulations. In terms of Section 6 of the ordinance, whoever knowingly or wilfully makes any false declaration shall be punishable with a fine, which may extend to Rs50,000 or five times the amount of the face value of the SBNs tendered, whichever is higher.

Any person aggrieved by the refusal of the Reserve Bank to credit the value of such notes may make a representation to the central board of the Reserve Bank within 14 days of the communication of such refusal, RBI said.

In terms of section 5 of the ordinance, from 31 December 2016 no person shall knowingly or voluntarily hold, transfer or receive any specified banknotes. After the expiry of grace period, holding of not more than 10 notes in total, irrespective of denomination or not more than 25 notes for the purpose of study / research / numismatics is permitted.

In terms of Section 7, contravention of Section 5 shall be punishable with fine which may extend up to Rs10,000 or five times the face value of the SBNs involved in the contravention, whichever is higher.

In case the contravention / default in terms of Sections 6 and 7 is by a company, every person who was in charge of and responsible to the company at the time of contravention / default shall deemed to be guilty and will be liable to be proceeded against and punished. If the offence is proved to be attributable to the conduct by any director / manager / secretary / officer / employee of the company, such person shall also be deemed to be guilty of the offence and will be liable to be proceeded against and punished accordingly.

The facility will remain open for residents from 2 January 2017 to 31 March 2017 and for NRIs from 2 January 2017 to 30 June 2017 at five Reserve Bank offices at Mumbai, New Delhi, Chennai, Kolkata, and Nagpur.

The facility can be availed only in individual capacity and only on one occasion during the period. No third party tender is permissible under the facility.

This facility will not be available for Indian citizens resident in Nepal, Bhutan, Pakistan and Bangladesh.

Effective 13 March 2017, there will be no limits on cash withdrawals from Savings Bank accounts.

Cash withdrawal limits for current accounts/ cash credit accounts / overdraft accounts stand withdrawn with effect from 30 January 2017.

Meanwhile, RBI has allowed farmers to draw up to Rs25,000 per week in cash from their loan or deposit accounts subject to their accounts being compliant with the extant KYC norms.

Effective 20 February 2017, the limits on cash withdrawals from the savings bank accounts will be enhanced to Rs50,000 per week (from the current limit of Rs24,000 per week); and effective 13 March 2017, there will be no limits on cash withdrawals from Savings Bank accounts.

Meanwhile, towards ensuring unhindered farming operations during the Rabi crop season, NABARD would be utilizing its own cash credit limits up to about Rs23,000 crore to enable the DCCBs to disburse the required crop loans to PACS and farmers.

Banks with currency chests have been advised to ensure adequate cash supply to the DCCBs and RRBs. Adequate cash supply should also be ensured for rural branches of all commercial (including RRBs). Bank branches located in APMCs may also be given adequate cash to facilitate smooth procurement.