Note for Thought: Exchange of notes and coins

We have all seen a meme in social media wherein it was written in Devanagari script on a Rs. 10 currency note that “Sonam Gupta bewafa hai”, which means Sonam Gupta is unfaithful. It was probably written by some jilted lover to show the frustration on his rejected proposal. Almost everyone has faced a situation when they have got their clothes washed with currency notes in the pocket. I also remember an incident wherein a person offered high value currency notes in a temple near lighted earthen lamps which caught fire and note was significantly burnt. Currency notes are fragile and often these old, torn, burnt notes find way to our pocket while doing day to day transactions.

Most of us try to get rid of these kid of notes by using such notes in transactions at grocery store, petrol pumps and vegetable sellers etc. But little do we know that a person holding such notes has right to get them exchanged at bank branches. The regulator and supervisor of overall financial system in India, Reserve Bank of India (RBI) has issued detailed guidelines for exchange of notes and coins by the general public.

In this Article, I have attempted to define the rights of a person to receive fresh quality notes in exchange of defective notes.

1. In order to understand the scheme of RBI, it is necessary to understand the under which category such notes would fall. But before that, it is to be noted that a customer can get this exchange service at any of banks. It is not necessary that they should hold any account with such bank or branch. Banks are mandated to provide facility for exchange of notes and coins not only to their customers but also to others.

2. For the purpose of discussion, these notes can be categories into three types, i.e. Soiled Notes, Mutilated Notes and Other Defective Notes.

(i) Soiled Note: A soiled note is one which has become old due to normal wear and tear and also includes two-piece note pasted together with no essential feature missing.
In case you receive Soiled Notes, then you may request the bank to deposit Soiled Notes in the bank account maintained at the Bank or use such notes towards payment of Government dues. Banks are mandated exchange Soiled Notes over the counter, free of charge if the number of notes presented are less than 20 or Rs. 5000 in value. However, if the number of notes or value of such note exceeds the aforesaid threshold, then banks may accept them, against receipt, for value to be credited later.

(ii) Mutilated Note: A mutilated note is a note of which a portion is missing or which is composed of more than two pieces.

A person holding mutilated notes can request for exchange of mutilated notes. Such mutilated notes need to be accepted, exchanged and adjudicated in accordance with Reserve Bank of India (Note Refund) Rules, 2009. As per this Rules, mutilated notes need to be adjudicated by prescribed officer of the designated branch of the Bank in the accordance with the rules given thereunder. It is to be noted that value of such mutilated note depends upon the calculation of the area of the single largest undivided piece of the note. It means if a note is torn into three parts, the value of such note shall be corresponding to the area of single largest piece.

In case mutilated branches are not able to adjudicate the notes or number of notes presented is more than 5 but not exceeding Rs. 5000 in value, then nearby currency chest branch needs to be contacted either via concerned branch or directly. In any case, the exchange value shall be received by the concerned person with 30 days of tendering the mutilated notes.

(iii) Other defective Note (i.e. Extremely brittle, burnt, charred, stuck up Notes): Under this category, it includes notes which have turned extremely brittle or are badly burnt, charred or inseparably stuck up together and, therefore, cannot withstand normal handling. Such notes shall not be accepted at the branch. The holder of such notes are required to approach concerned issue office where it shall be adjudicated and exchanged under a special procedure.

3. Coins and small denomination notes: A person use coins at bank branches for either transactions or exchange. No bank branches can refuse to accept small denomination notes and / or coins tendered at their counters. However, it is to be noted that with effect from June 30, 2011, the coins of 25 paisa and below cannot be used as legal tender.

4. Information to general public: In order to ensure that general public has information about exchange facility, all bank branches are required to display at their branch premises, at a prominent place, a board indicating the availability of note and coin exchange facility.

5. Grievance redressal: Any person aggrieved with the services provided by the banks in this regard may approach Banking Ombudsman concerned, following the procedure as laid under Banking Ombudsman Scheme, 2006.

So, next time when you receive defective notes inadvertently, you do not need to get rid of such notes by hiding it in other notes and giving it at Grocery store. Just walk into the nearest branch of any bank and ask them to exchange these notes.

All that Glitters is not Gold Card Scheme

RBI has recently issued an advisory that Gold Card scheme as contained in “Master Circular on Rupee / Foreign Currency Export Credit and Customer Service To Exporters dated July 01, 2015” needs to strictly implemented by the banks. This advisory was issued by RBI upon receiving representations from the industry that banks are not extending benefits of Gold Card Scheme to eligible exporters.

Export plays an important role in a developing economy like India. Indian Government lays special emphasis on the promotion of export and takes different initiatives from time to time in this direction.

Gold Card Scheme was introduced by Reserve Bank of India (RBI) in the year of 2004 with the objective of promotion of export by simplifying the access of credit to the exporters and borrower friendly terms of credit.

In order to understand Gold Card Scheme, we need to understand the salient features of this Scheme, which are enumerated below:

Eligibility

Exporters including those in small and medium sectors with good track record would be eligible for issue of Gold Card by the banks.

Preferential Treatment

Gold Card holder exporters, depending on their track record and credit worthiness, will be granted better terms of credit including rates of interest than those extended to other exporters by the banks. It is to be noted that the applicable rate of interest to be charged under the Gold Card Scheme will not be more than the general rate for export credit in the respective bank.

Applications for credit (including sanction and renewal) will be processed at norms simpler and under a process faster than for other exporters.

The charges schedule and fee-structure in respect of services provided by banks to exporters under the Scheme will be relatively lower than those provided to other exporters.

Gold Card holders would be given preference in the matter of granting of packing credit in foreign currency.

'In-principle' limits will be sanctioned for a period of 3 years with a provision for automatic renewal subject to fulfilment of the terms and conditions of sanction.

Catering of contingent needs

A stand-by limit of not less than 20 per cent of the assessed limit may be additionally made available to facilitate urgent credit needs for executing sudden orders. In the case of exporters of seasonal commodities, the peak and off-peak levels may be appropriately specified.

In case of unanticipated export orders, norms for inventory may be relaxed, taking into account the size and nature of the export order.

Gold Card holders, on the basis of their track record of timely realization of export bills, will be considered for issuance of foreign currency credit cards for meeting urgent payment obligations, etc.

Sans Collateral

Banks would consider waiver of collaterals and exemption from Export Credit Guarantee Corporation of India (ECGC) guarantee schemes on the basis of Gold Card holder's creditworthiness and track record.

Timelines

Fresh applications / renewal of limits and adhoc limits requests from Gold Card holders would be processed quickly by banks within 25 days / 15 days and 7 days for fresh applications / renewal of limits and ad hoc limits, respectively.

Excluded

The scheme will not be applicable for exporters blacklisted by ECGC or having overdue bills in excess of 10% of the previous year’s turnover.

In a nutshell, this scheme incentivise good behaviour of an exporter. The only concern with this scheme is that the scheme in the current form is high level. Thus, it gives lots of discretionary scope to the banks which needs to be narrowed down to bring more clarity. Nonetheless, the scheme has a very earnest objective and similar scheme should be extended to other areas as well particularly for micro, small and medium enterprises.