With greater awareness and use of note-sorting machines, banks are reporting more cases of fake notes in circulation.

However, reporting of cases of counterfeit notes by banks is still below expectations.

The Reserve Bank of India has now said failure to report such cases might lead to penal action.

Public sector banks, which account for about 90 per cent of the country's currency chests, are found wanting in reporting cases of fake notes -- their share in the number of reported cases is a dismal 10 per cent.

Pointing to the lacklustre performance of state-owned banks, RBI said it would take action in case counterfeit notes were detected without the bank reporting such incidents.

Failure to report such cases by banks would be considered wilful involvement of the bank in circulating counterfeit notes and, therefore,

might lead to penal action, RBI warned.

In May, RBI had asked banks to ensure notes received in denominations of Rs 100 or above were not re-circulated without being machine-processed for authenticity.

Banks could either provide these machines to its branches or provide only machine-processed notes to be distributed at branches that didn't have such machines.

In the first week of November, RBI would review the implementation of the instructions issued in May.

The central bank has suggested state governments nominate a nodal police station in every district for reporting cases of counterfeit notes.

Banks and treasuries should send monthly consolidated reports for cases of detection of counterfeit notes (up to four pieces in a single transaction).

In case five or more counterfeit notes were detected in a single transaction, banks should lodge a first information report with the nodal police station/police authorities, RBI said.