The issuance of ₹100 and ₹20 currency notes under the Mahatma Gandhi (New) Series, amendment of Note Refund Rules and upgradation of Currency Verification and Processing Systems across offices of the Reserve Bank were the notable features of currency management during 2018-19 within the endeavour to ensure an adequate supply of clean banknotes of various denominations in the economy.

VIII.1 The Reserve Bank’s currency management function is guided by the goal of ensuring an adequate supply of clean banknotes of various denominations in the economy. During 2018-19, important developments included introduction of ₹100 and ₹20 denomination notes under the Mahatma Gandhi (New) Series, amendment of Note Refund Rules, 2009, and upgradation of Currency Verification and Processing Systems (CVPS) across offices of the Reserve Bank. Concerted efforts were also made towards indigenisation of manufacturing colour shifting ink. The project of replacing the Integrated Computerised Currency Operations and Management System (ICCOMS) application with an improved currency management module and integration of currency management functions with the Core Banking Solution (e-Kuber) of the Reserve Bank is in progress. The Reserve Bank has also set up a state-of-the-art Banknote Quality Assurance Laboratory in October 2018 at Mumbai.

VIII.2 Against the above backdrop, the rest of the chapter is arranged as follows: section 2 presents the important developments in currency in circulation. Section 3 covers implementation status of the agenda for 2018-19 and section 4 provides agenda for 2019-20.

2. Developments in Currency in Circulation

VIII.3 Currency in circulation (CiC) includes banknotes and coins. At present, the Reserve Bank issues notes in denominations of ₹2, ₹5, ₹10, ₹20, ₹50, ₹100, ₹200, ₹500 and ₹2000. Coins in circulation comprise 50 paise and 1, 2, 5 and 10 rupee denominations. In terms of value, banknotes accounted for major share of the total CiC (around 99 per cent).

Banknotes

VIII.4 The value and volume of banknotes in circulation increased by 17.0 per cent and 6.2 per cent to ₹21,109 billion and 108,759 million pieces, respectively, during 2018-19. In value terms, the share of ₹500 and ₹2000 banknotes, which had together accounted for 80.2 per cent of the total value of banknotes in circulation at end-March 2018, increased to 82.2 per cent at end-March 2019. There was a sharp increase in the value of ₹500 banknotes in circulation—from 42.9 per cent to 51.0 per cent over the year. In volume terms, ₹10 and ₹100 banknotes constituted 47.2 per cent of total banknotes in circulation at end-March 2019 as against 51.6 per cent at end-March 2018 (Table VIII.1).

Coins

VIII.5 The total value of coins in circulation increased by 0.8 per cent in 2018-19 as against an increase of 2.4 per cent last year, while the total volume increased by 1.1 per cent as compared to an increase of 2.4 per cent in the previous year. As on March 31, 2019, coins of ₹1, ₹2 and ₹5 together constituted 83.6 per cent of the total volume of coins in circulation, while in value terms, these denominations accounted for 78.3 per cent (Table VIII.2).

Currency Management Infrastructure

VIII.6 The functions relating to issuance of currency (both banknotes and coins) and their management are performed by the Reserve Bank through its issue offices, currency chests and small coin depots spread across the country. As at end-March 2019, the State Bank of India accounted for the highest share of around 63 per cent of currency chests, followed by the nationalised banks with around 31 per cent (Table VIII.3).

Indent and Supply of Currency

VIII.7 The indent of banknotes for 2018-19 was lower by 5.6 per cent from their level a year ago. However, the supply of banknotes during 2018-19 was higher than in the previous year. The supply of coins also increased during the period by 4.8 per cent over the previous year (Tables VIII.4 and VIII.5).

Disposal of Soiled Notes

VIII.8 After completion of processing of the Specified Bank Notes (SBNs) by March 2018, the Reserve Bank focused on the other denominations of soiled notes accumulated due to prioritisation of SBNs processing during 2017-18. As on March 2019, denominations of ₹10 and ₹100 together accounted for 83.3 per cent of the total disposed soiled banknotes (Table VIII.6).

Counterfeit Notes

VIII.9 During 2018-19, out of the total Fake Indian Currency Notes (FICNs) detected in the banking sector, 5.6 per cent were detected at the Reserve Bank and 94.4 per cent were detected by other banks (Table VIII.7).

VIII.10 Compared to the previous year, there was an increase of 20.2 per cent, 87.2 per cent and 57.3 per cent in counterfeit notes detected in the denominations of ₹10, ₹20 and ₹50, respectively. Counterfeit notes detected in the denomination of ₹100 declined by 7.5 per cent. In the denomination of ₹200, which was introduced in August 2017, 12,728 counterfeit notes were detected as against 79 during the previous year. Counterfeit notes in the denomination of ₹500 (new design notes), increased by 121.0 per cent, while in ₹2000, it increased by 21.9 per cent during 2018-19 (Table VIII.8).

Expenditure on Security Printing

VIII.11 The total expenditure incurred on security printing during July 1, 2018 to June 30, 2019 stood at ₹48.11 billion as against ₹49.12 billion in the previous year.

3. Agenda for 2018-19: Implementation Status

Integration of Currency Management Functions with Core Banking Solution (e-Kuber)

VIII.12 The Reserve Bank has been using ICCOMS application as its currency management solution for inventory management and accounting of currency chest transactions as well as currency management operations at its regional offices. ICCOMS is being replaced by an improved currency management module, with integration of currency management functions with the Core Banking Solution (e-Kuber) of the Reserve Bank. Some of the salient features of the new module include improved inventory management, near real time accounting of currency chest transactions, transit accounting and better tracking of CiC. The integration project is to be implemented in three phases: Regional Office-Issue Department module (Phase I); external accounting module with currency chests portal (Phase II); and MIS-Ancillary module (Phase III). Phase I has been implemented and Phase II is in an advanced stage of implementation.

Laboratory for Banknote Quality Assurance

VIII.13 The Reserve Bank has set up a state-of-the-art Banknote Quality Assurance Laboratory in October 2018 at Mumbai to ensure the standardisation and quality of banknotes among different presses, based on the recommendation of the Group of Experts for Review of Systems and Processes relating to banknote production (Chairman: Shri C. Krishnan).

Automation of Banknote Handling Process

VIII.14 In order to upgrade the infrastructure and processes for currency management, the Reserve Bank is actively deliberating on inducting modern technology and automating the processes of banknote handling, in addition to the existing automated system of processing banknotes through CVPS.

Minimum Standards for Currency Chests (CCs)

VIII.15 The Committee on Currency Movement (CCM) (Chairman: Shri Deepak Mohanty), recommended, inter alia, that the Reserve Bank should encourage banks to establish large CCs with modern infrastructure facilities. Accordingly, the revised minimum standards for CCs were issued on April 8, 2019 which stipulate that the strong rooms/vaults should have an area of at least 1500 sq. feet and processing capacity of 660,000 pieces of banknotes per day. For hilly/ inaccessible areas, the CCs should have an area of the strong room/vault of at least 600 sq. feet and processing capacity of 210,000 pieces. In addition, the infrastructure at these CCs should be amenable to adoption of automation and implementation of IT solutions.

New Security Features for Banknotes

VIII.16 A Global Pre-Qualification Bid Notice was issued in July 2017 incorporating the “Make in India” clause (to the extent feasible) in terms of Government of India’s Public Procurement (Preference to Make in India) Order, 2017, for procurement of security features for banknotes. The Reserve Bank is actively involved in taking the process forward.

Banknotes in Mahatma Gandhi (New) Series (MGNS)

VIII.17 Banknotes under the Mahatma Gandhi (New) Series were launched in 2016, highlighting the cultural heritage and scientific achievements of the country. During the year, banknotes of ₹100 and ₹20 denominations of the same series were also issued (Table VIII.9).

Procurement of CVPS

VIII.18 During 2017-18, the Reserve Bank invited a global tender for replacing 50 old CVPS machines, and orders for procurement of these machines were placed. The process of supplying and installing the machines is underway and is expected to be completed by December 2019. Fifteen machines have already commenced operations in various offices.

Amendment of Note Refund Rules, 2009

VIII.19 In order to enable the public to exchange mutilated notes in the Mahatma Gandhi (New) series, which are smaller in size compared to the earlier series, at bank branches and RBI offices, the Reserve Bank has made changes to its Note Refund Rules, 2009 (Box. VIII.1).

Implementation of the Recommendations of Committees on Currency Management Aspects VIII.20 As announced in the Statement on Developmental and Regulatory Policies of February 7, 2018, a Task Force was formed to implement the recommendations of inter-agency committees, viz., the High Level Committee on Currency Storage and Movement (HLCCSM) (Chairman: Shri N. S. Vishwanathan) and the Committee on Currency Movement (CCM) (Chairman: Shri Deepak Mohanty). Recommendations relating to standardisation of raw material procurement, quality assurance, note printing processes, security features etc., across all presses and paper mills, made by a Group of Experts (Chairman: Shri C. Krishnan) were also pursued for implementation. Pursuant to the recommendations of the CCM, the Reserve Bank has issued circulars/instructions relating to minimum standards for engaging service providers for cash management activities, using lockable cassettes in ATMs, processing of notes on note sorting machines and standardisation of storage facilities in currency chests, timely reconciliation of transactions of ATM cash replenishment and increasing service charge on cash deposited with a large modern currency chest by non-chest branches to make the retail currency circulation system in India efficient and secure. Norms for opening large currency chests with modern facilities were also issued. The recommendations of the HLCCSM (Interim Report), CCM and Expert Group are in various stages of implementation.

4. Agenda for 2019-20

Introduction of Varnished Banknotes - Field Trial

VIII.21 The Reserve Bank will introduce varnished banknotes of ₹100 denomination on a field trial basis in order to increase the life of Indian banknotes.

Aiding Visually Impaired in Identification of Denomination of Banknotes

VIII.22 The Reserve Bank will develop a mechanism/device for aiding the visually impaired in identification of denomination of banknotes. Indian banknotes have several features which enable the visually impaired (colour blind, partially sighted and blind people) to identify them, viz., intaglio printing and tactile mark, variable banknote size, large numerals, variable colour, monochromatic hues and patterns. Once the old series banknotes are withdrawn from circulation, identification of the new series banknotes will automatically become easy for the visually impaired. As indicated in the Statement on Developmental and Regulatory Policies of June 6, 2018, the Reserve Bank has embarked upon exploring alternative technological solutions to help the visually impaired in identifying the denomination of banknotes.

Other Areas of Focus

VIII.23 As part of the medium-term strategy framework, the scope for enhancing manufacturing capacities and indigenisation of banknotes, effecting improvements in the processing capabilities and logistics for efficient inventory management of currency and fine-tuning the models for estimation of demand for banknotes and coins are the areas which would receive increased focus during the year 2019-20.

Bhartiya Reserve Bank Note Mudran Private Ltd. (BRBNMPL)

VIII.24 BRBNMPL has set up an ink factory at Mysuru with an annual production capacity of 1,500 metric tonnes, which has started its commercial production from August 2018. Consequently, dry offset inks, Quickset Intaglio Inks (QSI), numbering inks and colour shifting inks used in the printing of banknotes are being manufactured at the Mysuru ink factory. This is a significant milestone achieved in the long journey towards indigenisation.