RBI opens vaults for banks to keep old notes

BE/RBI/34/2016

Now that the bank currency chests are over flowing with old, banned notes, the Reserve Bank of India (RBI) informs that these specified bank notes (SBN) could be deposited at their offices.

RBI has further added that these SBNs will remain in the vaults of RBI offices under whose jurisdiction they are located, under lock and key of the depositing banks till taken for examination.   The massive accumulation of SBNs at branches of banks and currency chests had, strained processing capacities and storage facilities as per RBI’s findings.   For SBNs deposited, RBI will give credit to banks’ current accounts with RBI.  For any shortage, counterfeit notes and mutilated notes detected during processing, the value will be recovered from the bank.

Meanwhile, public sector bankers said for a week, they faced huge pressure from the public demand for cash and the long queues to deposit old notes.  The closure of automated teller machines for recalibration had added to the woes for both bank staff and customers.  Now, however, the pressures had come down considerably, at least in metropolitan regions.  The focus now, has shifted to the servicing needs in semi-urban and rural areas, where much of business transactions happen in cash.

After Effect of Demonetization:

Rating agency Moody’s said withdrawal of the demonetised currency should provide a strong incentive for greater use of the formal financial system for the intermediation of commercial transactions, especially in the retail segment.

Further it is learnt that the Bank deposits will initially increase by one to two percent.  Currently, banks are having significant inflow, as customers deposit their existing holdings of the demonetised notes, to continue until end of December.  With an increase in the cash availability and also with the expiry of current restrictions on withdrawals , a moderation in the deposit base will occur.

Demonetisation, it said, might result in a reduction in lending rates, if part of the inflow remains within the banking system which is again a debatable issue.