Withdrawal of pre-2005 notes: Banks want April 1 deadline extended

Customers queue up at branches for enquiry

Baldev Shah, a 38-year old wholesale textile store owner from South Mumbai had a visit to his bank branch as the top priority for today. A businessman, who deals with cash of Rs 40,000-50,000 on an average for every transaction, he was worried about whether all bank-notes that he had were valid or not and if he could exchange old notes immediately.

Yesterday, the Reserve Bank of India (RBI) had said that it will withdraw all pre-2005 bank-notes from March 31, 2014. As a result, some of the branches in the city seen customers visiting the branches to enquire how the process will work. They have not just made enquiries at banks, but some have also deposited cash (of pre-2005 currency) into their accounts, putting the onus of giving new notes on the concerned banks.

"Since banks have the responsibility to provide new notes to customers, several such people have visited the bank branch and deposited large amounts of cash of pre-2005 currency into their accounts. This will ensure that the onus falls on banks to provide for April 1, when the directive will come into force," a senior bank officer said.

Further, branch officials said that since transactions of Rs 50,000 and above require an individual to provide PAN number, customers are depositing Rs 49,000 or below in several tranches  to avoid scrutiny.

RBI governor Raghuram Rajan today has clarified that yesterday's order was not an attempt at de-monetisation.  He said there has been a long standing demand that these notes have unfortunately become less secure. The notes after 2005 have greater security features and is difficult to counterfeit and the Finance Ministry sought withdrawal of the pre-2005 notes.

While cash deposits are not allowed to be kept in bank lockers, the branch manager of a large public sector bank said that some customers have also discreetly taken out cash from their lockers to check the currencies.

RBI had said yesterday that from April 1, 2014, the public will be required to approach banks for exchanging these notes. Banks will provide exchange facility for these notes until further communication. RBI further stated that public can easily identify the notes to be withdrawn as the notes issued before 2005 do not have on them the year of printing on the reverse side.

While some notes printed before 2005 have the year imprinted on them, several others do not have any year mentioned, the branch head of a public sector bank located in suburban Mumbai said.

Bank officials also said that it would be difficult to immediately implement the norms. The currency chest head of a public sector bank said that while the sorting machines provided by the vendors have some basic recognition capacity, further configuration is required.

"Notes printed post 2005 have security features that are identifiable by our sorting machines, which sort notes as 'issuable and 'non-issuable'. However, now the vendor who provides us the machine will have to tweak their software so that all pre-2005 notes can be sorted out. This is expected to take some time," the official added.

Enquiries have also begun coming from small business owners, who have Rs 40,000-50,000 at their disposal on a regular basis, to make small payments. A senior executive of a private sector bank said enquiries have come from entrepreneurs as to whether some separate arrangements could be made to handle pre-2005 cash submitted by the business community before April 1. The executive, however, added that this cannot be facilitated by them, since RBI the directive states otherwise and also due to the capacity constraints that they could face.

RBI has also clarified that the notes issued before 2005 will continue to be legal tender. This would mean that banks are required to exchange the notes for their customers as well as for non-customers. From July 01, 2014, however,  to exchange more than 10 pieces of Rs 500 and Rs 1000 notes, non-customers will have to furnish proof of identity and residence to the bank branch in which she/he wants to exchange the notes.

But with no deadline being given for exchanging the old notes, bank officials said that there is a customer fear of non-availability of notes. "Since there is no clarity on the duration for which old notes will be accepted, customers will be in for a shock if the banking regulator announces a sudden deadline. Neither will they be prepared nor will we have enough cash at our disposal to provide to customers," said a public sector bank executive.

The process of transition will also require sometime. This is because all the cash in the system of pre-2005 period will have to be withdrawn, sent to the RBI to be destroyed and new notes will have to be introduced in the system to replace the vacuum. A senior bank official explained that since currency printing is also a tedious and expensive process, there is a fear of shortage of cash in the system.

To implement the RBI circular, banks are waiting for a detailed guideline from Indian Banks Association (IBA), their umbrella body, as to how to process customer requests and transactions from April 1 onwards.