G-2 /08.07.18/2002-03

5th July, 2002

The Chairman & Managing Directors of
All Public Sector and Private Sector Banks

Dear Sir,

As you are aware, the Reserve Bank of India has, from time to time, issued a number of circulars containing instructions to banks on note exchange facility to be provided to the members of public. In order to enable the banks to have all the instructions at one place, it has been decided to consolidate the same. Accordingly, we enclose a Master Circular prepared on the subject for your information and taking appropriate action, where required.

Yours faithfully,

(Dr. N. Krishna Mohan)
General Manager

In terms of Section 28 read with Section 58(2) of Reserve Bank of India Act, 1934, no person is entitled as a right to recover from the Government of India or RBI the value of any lost, stolen, mutilated or imperfect currency note of the GOI or bank note. However, with a view to mitigating the hardship to the public in genuine cases, it has been provided that the RBI may, with the previous sanction of the Central Government, prescribe the circumstances in, and the conditions and limitations subject to which, the value of such currency notes or bank notes may be refunded as a matter of grace.

With a view to extending the facility for the benefit and convenience of public, all currency chest branches have been delegated powers under Reserve Bank of India (Note Refund) Rules for exchange of torn/mutilated/ defective notes.

2. In order to facilitate quicker exchange facilities, the following types of soiled and cut notes should be freely exchanged by all bank branches including non-chest branches. They should also be accepted over bank counters in payment of Government dues and for credit of accounts of the public maintained with banks.

I. Single numbered notes - Re.1/-, Rs.2/- & Rs.5/-

Note presented should not be more than two pieces. No essential feature of the note should be missing and complete number should be available in an undivided area on one of the pieces.

II. Double numbered notes - Rs.10/-,Rs.20/-
Rs.50/-, Rs.100/-,Rs.500/- & Rs.1000/-

The note presented should not be more than two pieces. No essential feature of the note should be missing. Both the pieces should be of the same note i.e. the complete number in an undivided area on each piece should be the same.

The above types of notes will be treated as soiled notes and be packeted alongwith soiled notes. These unfit notes shall, in no case, be issued to the public as reissuable notes but shall be deposited in currency chests for onward transmission to RBI offices as chest remittances.

[Ref.DCM.No.G-24/08.01.01/96-97 dated 03.12.1996]

Notes which have turned extremely brittle or badly burnt, charred or inseparably stuck up together and, therefore, cannot withstand normal handling, shall not be accepted by the branches for exchange. Instead, the holders may be advised to tender these notes to the concerned Issue Offices where they will be adjudicated under a Special Procedure.

3. Every Officer-in-charge of the branch, i.e. the Branch Manager and every officer-in-charge of the Accounts or Cash Wing of the Branch shall act as 'Prescribed Officer' in each branch to adjudicate the notes received at the branch for exchange in accordance with the RBI (NR) Rules 1975 (as amended upto 1980). After adjudicating mutilated notes, the Prescribed Officer is required to record his order by subscribing his initials to the dated 'PAY'/ 'PAID'/ 'REJECT' stamp. The 'PAY' & 'REJECT' stamps should also carry the name of the bank and branch concerned. Defective notes bearing 'PAY'/'PAID' (or 'REJECT') stamp of any RBI Issue Office or any bank branch, if presented for payment again at any of the designated bank branches should be rejected under Rule 5(1) of RBI (NR) Rules and the tenderer should be advised that the value of such (defective) note/s cannot be paid since the same has already been paid as is evident from the PAY/PAID stamps affixed on it/them. All bank branches have instructions not to issue notes bearing PAY/PAID stamps to the public even through oversight.

The branches should caution their customers not to accept such notes from any bank or anybody else. [Ref. Memorandum of Procedure to be followed by Public Sector Banks and Circulars DCM.No.185/CL.1(PSB)-86/87 dated 20.5.87 and No.52/08.07.18/ 96-97 dated 11.1.97]

4. Any note with slogans and message of a political nature written across it ceases to be a legal tender and the claim on such a note will be rejected under Rule 5(2) of RBI (NR) Rules. Similarly notes which are disfigured may also be rejected under Rule 5(2) of RBI (NR)Rules. [Ref.DCM Cir.No.189/CL.2-86/87 dated 2.6.87]

5. The notes, which are found to be deliberately cut or tampered with, if presented for payment of exchange value should be rejected under Rule 5(2)(ii) of the RBI (NR) Rules. Although it is not possible to precisely define deliberately cut/mutilated notes, a close look at such notes will clearly reveal any deliberate fraudulent intention, as the manner in which such notes are mutilated will follow a broad uniformity in the shape/location of missing portions of the notes, especially when the notes are tendered in large number. The details of the case such as the name of the tenderer, the number of notes tendered and their denominations should be reported thereafter to the Deputy/General Manager, Issue Department, under whose jurisdiction the branch falls. The matter should also be reported to local police in case a large number of such notes are tendered. The branches should ensure that the note exchange facility is not cornered by private money changers/professional dealers in defective notes. [Ref.Cir.No.S-12/CL.1(PSB)-88/89 dated 30.9.88 and No.8/ CL.1(PSB)-90/91 dated 17.8.90]

6. Our Issue Offices have instructions to conduct training programmes for 'Prescribed Officers' of currency chest branches on a priority basis. It should be ensured that only officers who are designated as 'Prescribed Officers' are deputed for training. As the training programmes are intended to provide knowledge and instil confidence in the Prescribed Officers in the process of adjudication of defective notes, it is imperative that the Prescribed Officers of the concerned branches do attend the programmes. [Ref.Cir.No.220/CL1(PSB)-85/86 dated 31.5.86]

7. All designated bank branches are required to display at their branch premises, at a prominent place, a board indicating the availability of note exchange facility with the legend, "Mutilated notes are Accepted & Exchanged Here". Banks should ensure that all their branches undertake note exchange business. [Ref.Cir.No.G-71/08.07.18/92-93 dated 22.6.93]

8. With the introduction of bank notes of Rs.1000/- denomination, the word 'five hundred rupees' wherever appearing in the Note Refund Rules has been substituted with the word 'one thousand rupees' and the number '1000' has been added after the number '500'. The effect of the above instruction is that the rules, which are applicable to exchange of double numbered notes upto Rs.500/- denomination, are now applicable to exchange of notes of Rs.1000/- denomination also.

Thus, the notes of Rs.1000/- denomination will be adjudicated under RBI (NR) Rules in the same way as notes of Rs.10/-, Rs.20/-, Rs.50/-, Rs.100/- and Rs.500/- are presently adjudicated.

[Press Release dated 6.10.2000]

9. The notes paid by the non-currency chest branches may get such notes exchanged from the nearest RBI Issue office or currency chest. The currency chest branch may deposit into the currency chest the notes paid for full value by it or such full value paid notes accepted by it from non-chest branches. These notes should however be kept distinctly separate and not mixed with other soiled notes. If note bearing PAY/PAID stamp are found mixed up in soiled note packets during the course of examination of chest remittances received in our Issue Offices, the same shall be returned to the chest representatives/remitted to chest branch at cost after treating it as deficiency which will be recovered by debiting the amount thereof to the account of the concerned bank maintained with our offices.

[Ref.Cir.No.G.82/CL.1(PSB)-87/88 dated 12.1.88 and G.74/CL. (PSB)Gen-90/91 dated 5.6.91]

10. Regarding audit of the adjudicated notes at the currency chests under the jurisdiction of the Issue Offices, the full value paid notes have to be remitted by currency chest branches to the Issue Office together with the next soiled note remittance in the manner as already laid down. The half value paid notes and rejected notes, which are held by the currency chest maintaining branch in its cash balance, may either be remitted separately packed together with the full value paid notes or sent by registered and insured post as and when required. While the full value paid notes would be treated as a chest remittance and accounted for in the Invoiced Notes Account as at present, the half value paid notes and rejected notes shall be treated and accounted for as receipt in the Claims Section and processed accordingly.

[Ref: Extract of the instructions, inter alia, on audit of mutilated notes contained in Circular DCM (CC) No. G-40/03.30.01/2003-04 dated June 9, 2004 issued to RBI Issue Offices which is applicable to the currency chest holding branches.]

11. All branches of currency chest maintaining banks in all parts of the country should provide the following customer services, more actively and vigorously to the members of public so that there is no need for them to approach the RBI Regional Offices only for this purpose:

(a) meeting the demands for fresh / good quality notes and coins of all denominations, (b) exchanging soiled notes, (c) adjudicating mutilated notes, and (d) accepting coins and notes either for transactions or exchange.

Availability of such facilities at the branches should be publicised for information of the public at large.

[Ref.Cir.No.DCM (NE) No. 310/08.07.18/2003-04 dated 19.01.2004]

12.(a) The agreement between Reserve Bank of India and the commercial banks for establishment of currency chests/and/or Small Coin Depots provides that the bank branches would accept coins in exchange of notes. The banks are requested to instruct their branches that

1. They should accept coins of all denominations from any member of public without any restriction and pay the value in notes.
2. They should use counting machines or accept coins by weight for large receipts, as hitherto.
3. Rupee coins accepted can be held as part of chest balance and small coins as part of the Small Coin Depot balance.
4. Small coins of 5,10 and 20 paise denominations may be periodically sent by the Small Coin Depot branches to the India Government Mints at Hyderabad, Kolkata and Mumbai in accordance with the existing prescribed procedure.

[Ref.Cir.No.DCM (RMMT) No. 404/11.37.01/2003-04 dated 9.10.2003]

(b) The banks are required to direct all their branches to accept coins of all denominations tendered at their counters either for exchange or for deposit in accounts. Such coins, particularly lower denominations, may be preferably accepted by weighment. However, as accepting coins packed in polythene sachets of 100 each would be more convenient for the cashiers as well as the customers, the banks may keep such sachets at the counters and make them available to the customers. A notice to this effect may be displayed suitably inside as also outside the branch premises for information of the public. Considering that aluminium coins of 5 paise, 10 paise, 20 paise, aluminium-bronze coins of 10 paise, stainless steel coins of 10 paise, cupronickel coins of 25 paise, 50 paise and rupee one denominations are being withdrawn and remitted to the mints, customers may be requested, and not insisted, by the banks to pack each of these denominations separately and also metal-wise with 100 coins in each sachet before they are tendered at the counters. Similar arrangements may also be made for acceptance of current coins of 25 paise, 50 paise and one rupee of stainless steel and two rupees and five rupees coins of cupronickel. In case of large variations of weight, counting machines may be used.

In order to obviate the problem of storage of coins at the branches, aluminium coins of 5 paise, 10 paise, 20 paise, aluminium-bronze coins of 10 paise, stainless steel coins of 10 paise and cupronickel coins of 25 paise, 50 paise and Re. 1 may be remitted to Government of India Mints at Mumbai/Kolkata/Hyderabad with prior intimation to them through the currency chest and small coin depot branches of your bank (or link currency chest and small coin depot branches of other banks) as per the existing procedure. Stainless steel coins of 25 paise, 50 paise and Re. 1 and cupronickel coins of Rs. 2 and Rs. 5 denominations should, however, be put back in circulation. In case, the stocks of these coins reach beyond the holding capacity of the currency chest / small coin depot for lack of demand, the Issue Department of the Circle should be approached for remittance of coins.

The Regional Managers / Zonal Managers of the banks may pay surprise visits to the branches and report the position of compliance in this regard to the Head Office which will review such reports and take prompt remedial action, wherever necessary.

Any non-compliance in this regard shall be viewed as violation of instructions issued by the Reserve Bank of India.

[Ref.Cir.No.DCM (RMMT) No. 1181/11.37.01/2003-04 dated 05.04.2004]

Master Circular

Subject : Reserve Bank of India (Note Refund)
Rules - Delegation of Powers