The Reserve Bank of India (RBI) has announced the withdrawal of Rs 2,000 denomination banknotes from circulation, while confirming that they will remain legal tender. In a move aligned with the “Clean Note Policy,” the RBI stated that the withdrawal aims to complete the exercise by September 30, 2023. According to the central bank, approximately 89% of the Rs 2,000 notes were issued prior to March 2017 and have reached their estimated life-span of 4-5 years.
The total value of Rs 2,000 banknotes in circulation has decreased from its peak of Rs 6.73 lakh crore on March 31, 2018, to Rs 3.62 lakh crore, constituting just 10.8% of the total notes in circulation as of March 31, 2023. Moreover, the RBI noted that the denomination is not commonly used for transactions, and there is an adequate stock of banknotes in other denominations to meet public currency requirements.
To facilitate the withdrawal, the RBI has outlined the process for the public to deposit or exchange Rs 2,000 banknotes. Individuals can deposit these notes into their bank accounts or exchange them for banknotes of other denominations at any bank branch. The deposit process will follow the usual guidelines, while the exchange of Rs 2,000 banknotes into other denominations will be limited to Rs 20,000 at a time at any bank, starting from May 23, 2023.
Additionally, the RBI’s 19 Regional Offices with issue departments will provide the facility for exchange up to the limit of Rs 20,000 for Rs 2,000 banknotes. It’s worth noting that the printing of Rs 2,000 banknotes was ceased in 2018-19 after the objective of introducing them was fulfilled.
The decision is expected to impact deposit accretion in banks, potentially easing the pressure on deposit rate hikes and leading to a moderation in short-term interest rates, as experienced during the previous demonetization exercise, according to Karthik Srinivasan, Senior Vice President Financial Sector Ratings at ICRA.