The Reserve Bank of India (RBI) announced on Friday that currency notes of Rs 2,000 denomination will be withdrawn from circulation, and advised the general public to exchange or deposit them in their bank accounts by September 30.
The exchange of the currency at bank branches will start from May 23. The central bank has set a limit of Rs 20,000 for exchange of the currency. This means, 10 banknotes of Rs 2,000 denomination can be exchanged at a time.
The banknotes in Rs 2,000 denomination will continue to be legal tender.
“Deposit into bank accounts can be made in the usual manner, that is, without restrictions and subject to extant instructions and other applicable statutory provisions,” the RBI said in a statement.
The printing of Rs 2,000 notes started in November 2016 after Prime Minister Narendra Modi announced demonetisation of Rs 1,000 and Rs 500 currency notes overnight.
“The Reserve Bank of India has advised banks to stop issuing Rs 2,000 denomination banknotes with immediate effect,” the central bank said.
“Members of the public are encouraged to utilise the time up to September 30, 2023 to deposit and/or exchange the Rs 2,000 banknotes,” the RBI added.
The facility for exchange of Rs 2,000 banknotes up to the limit of Rs 20,000 at a time shall also be provided at the 19 regional offices (ROs) of RBI having Issue Departments from May 23, 2023.
The RBI said it has decided to withdraw the Rs 2,000 denomination banknotes from circulation in pursuance of its “clean note policy”.
Analysts said the RBI’s move would result in moderation of interest rates as people would be forced to deposit the money held in cash.
“As witnessed during demonetisation, we expect the deposit accretion of banks could improve marginally in near term. This will ease the pressure on deposit rate hikes and could also result in moderation in short-term interest rates,” said Karthik Srinivasan, Senior Vice president Financial Sector Ratings, ICRA.
According to the RBI, the printing of Rs 2,000 banknotes was stopped in 2018-19. About 89% of the Rs 2,000 denomination banknotes were issued prior to March 2017 and are at the end of their estimated life-span of 4-5 years, 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% of notes in circulation) to Rs 3.62 lakh crore constituting only 10.8% of notes in circulation on March 31, 2023.
“It has also been observed that this denomination is not commonly used for transactions. Further, the stock of banknotes in other denominations continues to be adequate to meet the currency requirement of the public,” the RBI said.