The government has allowed banks and post offices to exchange old Rs500, Rs1,000 notes that are no longer in circulation with the Reserve Bank of India (RBI) within a month (by July 20), only if these notes were collected by December 30 last year. District central cooperative banks have also been permitted to exchange these banned notes with the RBI by July 20, provided they collected the demonetised notes between November 10 and 14 last year, according to a notification by the finance ministry. The decision comes as a relief, especially to cooperative banks located in remote areas that were allowed to take deposits or exchange the banned notes only for five days (up to November 14) last year following the announcement of demonetisation on November 8, sparking strong protests in states like Kerala where they have a massive presence. The move was primarily due to concerns that such cooperatives, with their opaque financial and audit systems, could be misused by unscrupulous elements to convert their black money into white. The latest move to allow them to deposit the junked currency brings those concerns back to the fore. The gazette notification said: “…such specified bank notes may be deposited by such bank, post office or district central cooperative bank, as the case may be, in any office of the Reserve Bank (office), within a period of 30 days from the commencement of these rules.”
It also said such entities should get the exchange value by credit to their accounts, subject to the satisfaction of the RBI of the conditions specified and the reasons for non-deposit of the bank notes within the timeframe given earlier. This is the second window the government has offered to banks, post offices and cooperative banks for depositing the banned notes with the central bank. The first window was open until December 31, a day after the 50-day demonetisation period was over. “Large banks hardly have such old notes left with them, although co-operatives and some post offices in remote areas may have failed to deposit such notes on time,” said a senior official with a public-sector bank. According to a recent report by a TV channel, district central cooperative banks in Maharashtra were stuck with old bank notes worth Rs2,770 crore that they have not been able to exchange.
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Prime Minister Narendra Modi had, on November 8 last year, announced the move to junk the high-value currency notes worth 86% of the money in circulation. He had termed the move a fight against black money, corruption and counterfeit currencies that are also used by certain forces to fund terrorist activities. India is the second-largest producer and consumer of currency notes, with circulation of bank notes having risen to 90.27 billion pieces from 64.58 billion over the past five years. The central bank hasn’t yet released the value of demonetised currency notes collected so far, but many analysts believe a substantial chunk of the junked notes has returned to the banking system. The new rules will be known as Specified Bank Notes (Deposit by Banks, Post Offices and District Central Cooperative Banks) Rules, 2017.