India – The Reserve Bank of India (RBI) has announced its decision to withdraw ₹2,000 denomination banknotes from active circulation as part of its “Clean Note Policy.” It is important to note that the ₹2,000 notes will still retain their status as legal tender. This move echoes a similar withdrawal of notes from circulation that took place in 2016.
The decision to withdraw ₹2,000 notes from circulation brings back memories of the demonetization period when banks faced significant challenges due to the large number of people rushing to exchange their banknotes. This move is anticipated to put strain on the banking system and create anxiety and inconvenience for the public.
The Reserve Bank of India (RBI) has advised the public to deposit their ₹2,000 notes into their bank accounts or exchange them for banknotes of other denominations at any branch. The RBI stated that deposits into bank accounts can be made in the usual manner, without any restrictions, and in compliance with existing instructions and relevant statutory provisions.
To ensure smooth operations and avoid disruptions in regular banking activities, starting from May 23, 2023, individuals can exchange ₹2,000 notes for banknotes of other denominations up to a limit of ₹20,000 at a time in any bank. In order to facilitate a time-bound process and provide sufficient time for the public, all banks have been instructed to offer deposit and/or exchange services for ₹2,000 notes until September 30, 2023.
The Reserve Bank of India (RBI) has provided banks with specific instructions regarding the withdrawal of ₹2,000 notes. Starting from May 23, 2023, individuals can avail of the facility to exchange ₹2,000 notes up to the limit of ₹20,000 at a time at the 19 Regional Offices of the RBI that have “Issue Departments.” Banks have been directed to cease the issuance of ₹2,000 notes immediately.
The RBI statement further encourages members of the public to utilize the time available until September 30, 2023, to deposit and/or exchange their ₹2,000 notes.
The introduction of the ₹2,000 banknote in November 2016 aimed to address the immediate currency needs of the economy after the withdrawal of legal tender status for ₹500 and ₹1,000 banknotes in circulation at that time, according to the banking regulator. The purpose of introducing ₹2,000 notes was fulfilled when an adequate supply of banknotes in other denominations became available.
The printing of ₹2,000 notes was halted in 2018-19. The RBI stated that approximately 89% of the ₹2,000 notes were issued prior to March 2017 and have reached their estimated lifespan of 4-5 years. The total value of these banknotes in circulation has decreased from ₹6.73 lakh crore (37.3% of notes in circulation) at its peak on March 31, 2018, to ₹3.62 lakh crore, accounting for only 10.8% of notes in circulation as of March 31, 2023, according to the RBI.
Karthik Srinivasan, Senior Vice-President, Group Head, Financial Sector Ratings, ICRA Ltd., stated, “As seen during the demonetisation period, we anticipate that the deposit growth of banks could experience a slight improvement in the near term. This will alleviate the pressure on deposit rate hikes and may also lead to a moderation in short-term interest rates.”
