99% of scrapped notes back with banks, says RBI report

MUMBAI: The Reserve Bank of India (RBI) on Wednesday said that Rs 15.28 lakh crore –or 99% of the Rs 15.44 lakh crore demonetised by withdrawal of Rs 500 and Rs 1000 notes on November 8, 2016 –has been deposited with banks.

The disclosure dashes hopes of the government earning a windfall by extinguishing trillions of rupees worth demonetised currency that has not been returned.

In its annual report, the RBI said that the number of returned notes does not include the money collected by district central cooperative banks and from the notes deposited by citizens and financial institutions in Nepal, which are likely to be accepted.

To make matters worse, the central bank’s printing costs have more than doubled to Rs 7,965 crore in 2016-17 from Rs 3,421 crore in the previous year and its interest income was hit due to demonetisation.

The RBI has been tentative in releasing data on the currency received, stating that the number is only estimation. According to the RBI, some of the returned money is still lying uncounted in currency chests.

Demonetsation has drained finances of Reserve Bank

Till such time these notes are processed by the RBI for their numerical accuracy and authenticity, only an estimation of specified banknotes received back is possible,” the RBI said.

Instead of boosting earnings, demonetisation has turned out to be a drain on the central bank’s finances.

RBI’s interest income dropped 10% to Rs 66,051 crore from Rs 73,543 crore in the previous year. RBI said income from domestic sources fell 17% to Rs 43,232 crore as it had to pay out more interest on the money that it mopped up from banks as part of liquidity management post demonetisation.

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As a result, RBI’s dividend to the government for 2016-17 halved to Rs 30,659 crore from Rs 65,876 crore in the previous year. Dividend was also lower because RBI chose to transfer Rs 13,000 crore to its contingency fund — a first in three years.

Unearthing of fake currency through demonetisation has also turned out to be muted. RBI said that 3.7 lakh pieces of Rs 500 fake notes (old design) were detected and in the case of Rs 1,000, currency notes 2.56 lakh pieces were detected.

While this is 345% more than the previous year, this represents only 0.0007% of the Rs 1,000 notes in circulation and 0.002% of Rs 500 notes. Overall only 0.0013% of the Rs 15.4 lakh crore of demonetised currency was found to be fake. Surprisingly, RBI said that 199 pieces of fake Rs 500 notes in the new design were also unearthed.

While the demonetisation exercise may not have resulted in black money being destroyed in the form of unreturned notes, it may help in tracing unaccounted wealth, RBI said. “The trail of deposits of specified bank notes into bank accounts may provide valuable information to the revenue authorities in tracing unaccounted money,” said RBI in its annual report.