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  1. Here’s why RBI may be holding back Rs 2,000 notes

Here’s why RBI may be holding back Rs 2,000 notes

India’s apex bank, Reserve Bank of India may either be holding back Rs 2,000 notes or could have stopped printing high denomination currency, according to a latest SBI research report.

By: | Updated: December 21, 2017 10:57 AM
RBI, Bank of India, Reserve Bank of India, Prompt Corrective Action framework, prompt corrective action, PCA framework, negative return on assets, common equity tier 1 capital, NPA, PCA framework, Corporation Bank, Oriental Bank of Commerce, Dena Bank, Central Bank of India, IDBI Bank, Indian Overseas Bank, Bank of Maharashtra and UCO Bank RBI had printed 16,957 million pieces of Rs 500 notes and 3,654 million pieces of Rs 2,000 notes as on December 8, according to information from the ministry. (Image: IE)

India’s apex bank, Reserve Bank of India may either be holding back Rs 2,000 notes or could have stopped printing high denomination currency, according to a latest SBI research report. The report, authored by SBI’s chief economist, Soumya Kanti Ghosh, cited data submitted by Finance Ministry to the Lok Sabha which said the value of Rs 2,000 notes were Rs 7,308 billion as on December 8, while the value of small denomination currency in circulation up to March 2017 was Rs 3,501 billion, according to RBI’s annual report.

Further, the RBI had printed 16,957 million pieces of Rs 500 notes and 3,654 million pieces of Rs 2,000 notes as on December 8, according to information from the ministry. The total value of such notes amounts to Rs 15,787 billion. This implies that the value of high denomination notes was equivalent to Rs 13,324 billion as on December 8 after we net out the small denomination notes from the currency in circulation on December 8.

“This means that the residual amount of high-value currency notes of Rs 2,463 billion may have been printed by the RBI but not supplied in the market,” says that report adding, “It is safe to assume that ₹2,463 billion may be on the lower side as the RBI must have printed notes of small denomination in the interregnum (₹50 and ₹200).” But why would the apex bank actually hold back the notes? Soumya Kanti Ghosh says that the big denomination notes led to difficulties in transactions.

“As a logical corollary, as 2000 denomination currency led to challenges in transactions, it thus indeed seems that RBI may have either consciously stopped printing the 2000 denomination notes/or printing in smaller numbers after initially it was printed in ample amount to normalise the liquidity situation,” the author observed in the report. Further, the expert notes that the share of small currency notes in circulation has also increased. “This also means that the share of small currency notes in total currency in circulation now may have touched 35 percent in value terms,” the report said.

In August this year,  Finance Minister Arun Jaitley put a rest to the rumours of Rs 2000 notes being phased out by saying that the government has no plan to do so. “No discussion within Government, of phasing out Rs. 2000 notes,” the finance minister was quoted saying by PIB. The Rs 2000 notes were launched in November 2016 after the Narendra Modi government had decided to stop the circulation of the Rs 1000 notes.

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