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To Tackle Cash Crunch, Banks in India disbursing Soiled Currency Notes, sprayed with Perfume and Insecticides

Such soiled and damaged notes are usually returned to banks and sent to RBI offices where they are ferried to dumping sites

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Indian Currency, Pixabay

New Delhi, November 19, 2016: Battling an unprecedented cash crunch after the government spiked high-value currency notes, banks at various places have been receiving soiled Rs 100 notes for disbursal that were otherwise supposed to be dumped after being taken out of circulation years ago.

Many customers in Delhi complained to IANS that they received some of these soiled and almost mouldy currency notes that in the odd case even smelt bad.

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A bank manager, who wished not to be named, told IANS: “The RBI is sending old 100-rupee notes stored for years but not destroyed, These notes smell. We are spraying them with perfumes and insecticides before disbursing them.”

The manager said that a large number of 100-rupee notes worth millions of rupees have been returned for circulation to narrow down the huge cash demand-supply gap after the November 8 demonetisation of 500- and 1,000-rupee notes — which accounted for 86 per cent of the currency in circulation.

As a normal practice, such soiled and damaged notes are usually returned to banks and sent to RBI offices where they are put into shredder machines and ferried to dumping sites.

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However, it appears that the central bank may not have dumped some of these notes in years and these have now come to the RBI’s rescue in these times of a severe cash crunch.

Long queues outside banks and ATMs continued for the ninth day on Saturday with people jostling to get cash to meet their daily needs.

Although the Finance Ministry and the RBI insist that there are sufficient number of new Rs 2,000 and Rs 500 notes to replace the estimated Rs 14.5 lakh crore sucked out of the economy by the demonetisation, there is clear evidence of a shortage.

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While some attribute this to logistical issues — the problem of getting the new notes to bank branches across the country — others have made calculations, based on the printing capacity of the four currency presses in the country, to contend that the demand-supply mismatch will take anywhere between six and nine months to bridge. (IANS)

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RBI Working With Regulators For Better Security Lending Products, Says DG

The Reserve Bank of India (RBI) is currently working with other financial sector regulators like Sebi, PFRDA and Irda to develop an interest rate market

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RBI, security, finance, market
This is broken as Rs 1,23,414 crore as surplus for year 2018-19 and another Rs 52,637 crore of excess provisions identified by the committee as per the revised Economic Capital Framework. Pixabay

The Reserve Bank of India (RBI) is currently working with other financial sector regulators like Sebi, PFRDA and Irda to develop an interest rate market where mutual funds, pension and insurance funds could participate in securities lending to deepen market based finance and develop an alternate to bank finance.

“IRDA, SEBI and PFRDA too could help development of interest rate markets. For instance, short selling activity could benefit if a wider pool of securities lenders can be developed.

“Insurance and pension funds, mutual funds have significant holdings of Government securities that could be used to lent to short sellers. This would avoid short-squeeze incident we saw a couple of years back, apart from generating income for these entities.

“We are working with regulators to develop a securities lending product that could enable these entities to participate in securities lending,” B.P. Kanungo, Deputy Governor, Reserve Bank of India recently said at FIMMDA meeting in Moscow.

RBI, finance, security, market
Reserve Bank of India’s regional office at South Gandhi Maidan Marg, Patna. Wikimedia Commons

FIMMDA is a representative body of participants in the fixed income market in India.

He said the Indian financial sector which mostly has been a bank-based one needs to develop a robust fixed income market to bring in market discipline, to augment bank finance and indeed free up bank finance for uses that cannot access the market directly.

Development of the fixed income market has been an important objective of the Reserve Bank, the Government, the SEBI and other regulators these many years. Significant progress has been made, yet a lot remains to be achieved.

The Banking regulator is also currently looking at refurbishing some regulations on treatment of cash margins as deposits, payment of interest on such margins, posting of collateral abroad to enable participants to move to global margining standards.

“The risk management at market level is pretty robust, with central counterparty settlement, exchange traded products, trade repositories, legal entity identifier.

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But there is scope of improvement at entity-level as far as financial institutions are concerned, which will be tested with introduction of new accounting standards. Some other aspects of regulation – treatment of cash margins as deposits, payment of interest on such margins, posting of collateral abroad – are all under examination to enable participants to move to global margining standards.

Kanungo further said in the next five years the demand for bonds will significantly outstrip the supply.

“It is estimated that five years down the line, the demand for bonds will significantly outstrip the supply,” he said. (IANS)