Banks should supply 40% notes of Rs 500 or less to rural areas: RBI

Distribution can be worked out by checking district level current and savings account data

After the government nudged banks to focus on rural areas, the Reserve Bank of India (RBI) on Tuesday instructed the lenders that at least 40 per cent of bank notes should go to villages, in denomination of Rs 500 or below.
 
So far, the notes, being supplied by banks in those areas, “are not commensurate with the requirements of rural population”, a notification at the central bank’s website said.
 
Therefore, banks maintaining currency chests should immediately step up issuance of fresh notes to rural branches of regional rural banks, district cooperative banks, other commercial banks, White Label ATM Operators (WLAOs) and post offices in rural areas on a priority basis, it said.
 
Financial services secretary Anjuly Chib Duggal held a meeting with bank chiefs on December 30 to impress upon the need to focus on rural areas. Increasing supply of notes was an important instruction she passed on to the bankers.
 
RBI’s latest circular can be seen in that context.
 

The cash shortage, ensuing the scrapping of old high-value notes on November 8, hit the informal economy the most. Rural areas, where there is already shortage of bank branches and cash-vending machines, couldn’t fathom what to do with the Rs 2,000 notes they were getting from branches. As people started hoarding Rs 100 notes, daily transactions in rural areas came to a halt. On top of it, district level cooperative banks stopped facilitating cash exchange at a time when rabi season was in full swing.
 
In its notification to banks, RBI said banks can work out the distribution of cash by counting how much of current and savings account deposits are mobilised from a district and the share of rural areas in it.
 
“Accordingly, all chests operating in a district must issue bank notes to the above mentioned distribution channels in the indicated proportion,” RBI said.
 
“In particular ATMs, including WLAOs, may be issued Rs 500s and Rs 100s and among ATMs category, off-site ATMs should be allocated higher proportion of cash as against on site ATMs as they are more important in last mile currency connectivity,” RBI said. 
 
“Existing stock of other denominations notes below Rs 100 should be issued liberally,” the notification said, adding, banks should seek coins, obtain supply from the issue department of RBI if required, and ensure supply to public on priority basis.
 
The currency chests of banks will have to furnish daily data to their link offices, along with a weekly summary every Friday, stated the notification. The link offices, in turn, would forward the data to RBI’s regional office concerned to facilitate a review.
 
The link offices should monitor the daily reports “to avoid lumpiness in issuances and to ensure that issuances are evenly”, the notification added.