Banks will have to gear up for exchange of 181 crore pieces of Rs 2,000 notes from May 23 onwards following the Reserve Bank of India (RBI) decision to withdraw the notes from the system. As there are around 1.55 lakh bank branches in the country, each branch, on an average, will have to handle 11,677 pieces of Rs 2000 notes – or 116 notes per day between May 23 and September 30, 2023. While the whole exercise of exchange of Rs 2,000 notes may not appear as big as the demonetisation exercise in November-December 2016 when branches across the country witnessed chaotic scenes for exchange of Rs 500 and Rs 1,000 notes, banks are expected to deploy staff to handle the latest exercise. “There is a cost involved in exchange of notes. Banks will have to shell out money to reconfigure ATMs and cash recyclers accordingly,” said an official of a nationalised bank. There are 2.57 lakh ATMs across the country, according to RBI data. The RBI had earlier stated that among banknotes, "Rs 100 denomination banknote was the most preferred" and "Rs 2,000 banknote was the least preferred denomination". The 'banknote survey of consumers', which was published in the RBI annual report for 2021-22, involved around 11,000 respondents from the rural, semi-urban, urban and metropolitan areas, between the age of 18-79 years with a gender representation of 60:40 for males and females. "The survey findings revealed that, among banknotes, Rs 100 was the most preferred while Rs 2000 was the least preferred denomination. Among coins, denomination of Rs 5 was the most preferred whereas Rs 1 was the least preferred," the RBI had said. On Friday, the RBI said the total value of these banknotes in circulation has declined from Rs 6.73 lakh crore at its peak as on March 31, 2018 (37.3 per cent of Notes in Circulation) to Rs 3.62 lakh crore constituting only 10.8 per cent of notes in circulation on March 31, 2023. About 89 per cent of the Rs 2,000 denomination banknotes were issued prior to March 2017, and are at the end of their estimated four-five-year lifespan. As per the latest annual report of the RBI for 2021-22, the share of Rs 500 and Rs 2,000 banknotes together, in value terms, accounted for 87.1 per cent of the total value of banknotes in circulation as on March 31, 2022, as against 85.7 per cent on March 31, 2021. In volume terms, Rs 500 denomination constituted the highest share at 34.9 per cent, followed by Rs 10 denomination banknotes, which constituted 21.3 per cent of the total banknotes in circulation as on March 31, 2022. While banks will face pressure in facilitating the exchange of Rs 2,000 notes, there could be a marginal rise in deposits of the banks. "As witnessed during demonetisation, we expect the deposit accretion of banks could improve marginally in near term. This will ease the pressure on deposit rates hikes and could also result in moderation in short-term interest rates,” said Karthik Srinivasan, Senior Vice President, Group Head - Financial Sector Ratings, ICRA Ltd. The RBI introduced the Rs 2,000 notes during demonetisation in November 2016 primarily to meet the currency requirement of the economy in an expeditious manner after the withdrawal of legal tender status of all Rs 500 and Rs 1,000 banknotes in circulation at that time. The main objectives of the 2016 exercise were to reduce the element of black money, reduce cash transactions and digitise the financial system. However, over six years after the government announced demonetisation on November 8, 2016, currency with the public has now hit a new high. With cash remaining the preferred mode of payment, currency with public for the fortnight ended May 5, 2023 stood at a record high of Rs 33.66 lakh crore — up 87 per cent or Rs 15.69 lakh crore from Rs 17.97 lakh crore on November 4, 2016. Cash with the public has shot up by 269 per cent from Rs 9.11 lakh crore recorded on November 25, 2016, two weeks after Rs 500 and Rs 1,000 notes were withdrawn from the system and before new Rs 500 and Rs 2,000 notes were introduced. Former Finance Minister P Chidambaram said the Rs 2,000 note was a “band-aid to cover up the foolish decision” of demonetising Rs 500 and Rs 1,000 notes which were popular and widely exchanged currencies “A few weeks after Demonetisation, the government/ RBI were forced to re-introduce the Rs 500 note. I shall not be surprised if the government/RBI re-introduced the Rs 1,000 note as well. Demonetisation has come full circle,” he said in a tweet.
