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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 Won’t Hesitate on Steps for Financial Stability, Says Governor

Das further said that in a flexible inflation targeting framework, a delicate balance needs to be maintained between inflation and growth objectives

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Reserve Bank of India. VOA

Assuring the crisis-hit NBFC sector will be monitored, Reserve Bank of India Governor Shaktikanta Das on Friday said the central bank will not hesitate to take any required measure to maintain the financial stability of the economy.

In a lecture at the Lal Bahadur Shastri National Academy of Administration, Mussoorie, on the “evolving role of central banks”, Das also said that financial stability is major factor considered in the RBI’s monetary policy.

“In the non-banking sector, the Reserve Bank has recently come out with draft guidelines for a robust liquidity framework for the NBFCs. We are also giving a fresh look at their regulatory and supervisory framework. It is our endeavour to have an optimal level of regulation and supervision so that the NBFC sector is financially resilient and robust,” he said.

“The Reserve Bank will continue to monitor the activity and performance of this sector with a focus on major entities and their inter-linkages with other sectors. The Reserve Bank will not hesitate to take any required steps to maintain financial stability,” he added.

Reserve Bank of India. Wikimedia Commons

The liquidity crisis in the non-banking financial companies (NBFC) came to light when IL&FS defaulted on a commercial paper in September.

Das further said that in a flexible inflation targeting framework, a delicate balance needs to be maintained between inflation and growth objectives.

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“Post global financial crisis, it has been recognised that price stability may not be sufficient for financial stability and therefore financial stability has emerged as another key consideration for monetary policy, though jury is still out as to whether it should be added as an explicit objective of monetary policy.

“The fact remains that though the focus of monetary policy is mainly on inflation and growth, the underlying theme has always been financial stability,” the Governor said. (IANS)