RBI faces space crunch in vaults, cuts note printing order for 2018

Mumbai: A space crunch in the currency vaults of the Reserve Bank of India (RBI) has propelled its to reduce its order for printing currency notes in the current fiscal year to the lowest in five years, said media reports.

The indent or the order for 2018 now stands at 21 billion pieces of notes as against 28 billion pieces in 2017, two people familiar with the matter told Mint.

This is lesser than the average annual indent for banknotes over the past five years which is 25 billion pieces.

Experts however said that last year’s indent was a departure from the normal tradition as RBI had been preparing to introduce a new series of notes.

The RBI has introduced four new currency notes in the past one year – Rs 2,000, Rs 500, Rs 200 and Rs 50 notes. This is part of the central bank’s remonetisation process after the government’s note ban move in 2016. According to the latest RBI data, cash in circulation as of October 13 was Rs 15.3 trillion, just 10 per cent lower than a year ago.

According to sources familiar with the development, the unavailability of space in RBI vaults and currency chests is due to the stock of scrapped Rs 500 and Rs 1,000 notes that have returned to the system after demonetisation. The central bank is still in the process of counting and verifying the notes before they can be destroyed.

The reduction in indent is despite the fact that 12 million soiled note pieces released to mitigate the cash crunch post note ban are yet to be replaced.

A soiled note is a currency note that becomes dirty or soiled due to normal wear and tear. Two pieces of the same note pasted together to form a whole, with no essential feature missing, also counts as a soiled note.

“Reduction in indent is a conscious effort by RBI to keep within reasonable limits and optimising it with production capabilities. However, on the downside, there has been a perceptible increase in soiled notes over the last few years. This will put additional burden on using currency as a medium of exchange” and act as a disincentive for the use of cash,” Soumya Kanti Ghosh, group chief economic adviser at State Bank of India told Mint.