RBI to review banks' mechanism to detect fake notes

Concerned over circulation of counterfeit currency, the RBI on Tuesday said it will review the status of implementation of instructions for authentication of notes by banks in the first week of November.

A mechanism for detection and reporting of counterfeit banknotes was issued by the RBI in May.

"It is observed, however, that reporting of detection of counterfeit notes has not improved on the expected lines... A review on the status of implementation of the Reserve Bank's instructions issued in May 2012 will be made in the first week of November 2012," RBI Governor D Subbarao said while unveiling the second quarterly monetary policy stance.

In May, banks were advised to re-align their cash management to ensure that cash receipts in denominations of Rs 100 and above are not put into re-circulation without being machine-processed for authenticity.

Presenting a data, the country's monetary authority said that although 90 per cent of the currency chests are with the public sector banks, they account for reporting a mere 10 per cent of counterfeit notes.

"...while private sector banks with less than 10 per cent of currency chests are reporting 90 per cent of such cases," it said.

Subbarao said wherever counterfeit notes are detected but not impounded and reported, "it will be construed as wilful involvement of the bank concerned in circulating counterfeit notes and may attract penal measures".

Banks have the option of either providing machines to their branches or ensuring that branches which do not have the machines are supplied only machine-processed notes for distribution among the public.

Referring to the growing demand for coins in the country, RBI said a high-level committee has recommended additional storage points or underground silos in the space available in mints, which can be used as counter-cyclical buffers.

"...they (buffers) will store/absorb coins during surplus years and release them during shortages," RBI said.

The panel headed by RBI deputy governor K C Chakrabarty had said that if the last mile connectivity for distributing coins/small notes has to be achieved, there is a need to introduce alternative avenues for distribution of small notes and coins on behalf of banks.

"Banks may, therefore, be encouraged to explore the possibility of introducing the franchisee model," it said.