In A Bid To Beat Fake Notes, More Small-Denomination Currency

Let’s take a hypothetical case. You are looking to withdraw Rs 20,000 in cash from an ATM. The chances are that currently, you get the entire amount in Rs 500 notes, or the sum of Rs 19,500 (or Rs 19,000) in Rs 500 notes and the rest in Rs 100 (or Rs 200) notes. 

The result? There are reports of widespread difficulties in making transactions or purchases using cash, since very few currency notes of Rs 100 and Rs 200  denomination can be found in circulation. Part of the problem is that more than 85 per cent of the currency in circulation comprises of Rs 500 notes.  Officials said that to gear up for the change, more banknotes of the lower value will be printed.

But soon, your ATMs will dispense more Rs 100 and Rs 200 notes than Rs 500 notes. The Reserve Bank of India (RBI) , in its April 28 notification, said that by September 30, 75 per cent of all ATMs should have facilities to dispense either Rs 100 or Rs 200 notes from at least one cassette.

India has about 2,15,000 ATMs. Each ATM has four cassettes — or trays — which facilitate dispensation of cash. In most cases, all four dispense the same denomination, making it extremely difficult for people to make purchases or other payments in cash.

Users have often complained that their ability to pay in cash for transactions has drastically reduced due to the "flooding of currency notes of primarily one denomination" — Rs 500.

“More lower denomination notes in circulation will increase the velocity of cash transactions, which is much required,” Rituraj Sinha, Group Managing Director of cash logistics major SIS Group told The Secretariat.

Officials said, the rise in circulation of fake currency notes, especially that of Rs 500, is also behind the RBI's move to push banks to increase dispensation of Rs 100 and Rs 200 notes. The government had carried out a demonetisation exercise in November 2016 — ostensibly to fight terrorist funding, among other things — during which it launched currency notes of Rs 2,000. But these were discontinued in 2023. 

Fake Rs 500 Currency Notes

The increased circulation of “high-quality counterfeit Rs 500 currency notes” has been a cause of concern for the government and security authorities for many years now but the government had hoped that the use of UPI would resolve the bottled-up crisis. "However, that has not happened. Instead the Home Ministry has issued an alert on this just last month, asking all financial regulatory authorities and security agencies to take note of the situation," finance ministry officials said.

In 2020-21, about 39,453 fake currency notes of Rs 500 were detected. In 2023-24, the number rose to over 85,700.

Counterfeit currency notes pose a serious threat to national security, for a variety of reasons, including being channeled to fund terrorist groups. The government has already formed a Terror Funding and Fake Currency (TFFC) Cell to deal with the menace. 

Will It Cause Problems For Consumers?

Unlike in 2016 when demonetisation was announced, bankers aren't too concerned by the exercise to bring in more lower denomination currency notes. Sinha said that though the configuration of ATMs will have to be altered, it will be a seamless process. 

“We are fully capable of changing the configurations of the cassettes in a very limited time, without any disruptions,” he said, adding that higher circulation of lower denomination notes will benefit consumers seeking to make small transactions.

Cash withdrawals have remained strong, despite the use of Unified Payments Interface (UPI), which has become a preferred mode for most Indians. The daily number of transactions touched 596 million in April this year.

RBI has also mandated that by the end of this financial year, 90 per cent of all ATMs should have the facility to dispense currency notes of other denominations, besides Rs 500. "As part of an endeavour towards enhancing public access to frequently used denominations of banknotes, it has been decided that all banks and White Label ATM Operators (WLAOs) shall ensure that their ATMs dispense Rs 100 and Rs 200 denomination banknotes regularly," the RBI circular said.

However, banks are yet to decide on their own strategy and roadmap. They will have to decide on their cash dispensation strategy, depending on their respective customer base, region, and other needs.

For example, an ATM in a smaller town may have a configuration that dispenses more lower-denomination notes, while metros may need more higher-denomination currency to be dispensed. However, these issues, officials said, will be "details which we will keep figuring out with experience and changing as per the requirements of each area."