A Busy Year for the RBI

The Reserve Bank of India (RBI) has published its 2020/21 Annual Report which saw a small rise in demand for banknotes and the RBI continuing with its programme of developing how it does its business.

Cash in circulation rose slightly, with the banknote volume rate of increase rising from 6.6% per annum to 7.2%. The rate of increase for coins fell from 1.2% to 1% in the last year.

The 500 and 10 rupee notes are the most used banknotes, representing 85.7% of notes in circulation. The number of 500 rupee notes increased to 31.1%. It was the only denomination to have a double digit growth rate, 31.3%, continuing a strong growth trend since 2014-15.

Growth in coin volumes was lower, with the 10 rupee enjoying the highest rate of increase, 2.5%. A new 20 rupee coin was introduced during the year.

The indent for banknotes fell 9.7% while the coin indent was 11.8% lower. The supply of banknotes fell 0.3% short of meeting the indent but coin manufacture was 4.7% less. COVID-19 was given as the reason for this shortfall, although coin supply was also 8.6% short of the indent in 2019-20.

The disposal of soiled notes was badly disrupted by the pandemic and, although significant work has been carried out to catch up, disposal was 32% behind at year end. The disposal of the higher denomination notes was significantly up on last year so it was the low value denominations that fell short.

Perhaps reflecting the significant increase in circulation of the 500 rupee, counterfeiting of that denomination increased by 31.3% even though counterfeiting overall fell sharply by just under 30%. Counterfeiting fell between 2018-19 and 2019-20 by 6.5%.

Agenda for 2020-21

The RBI reported on two targets it had set for 2020-21 and further activities it had also worked on. Banknote volumes have doubled in the last decade and so the RBI has initiated a project to fully automate banknote handling. It is appointing a consultant to advise it on creating a new greenfield site for a fully automated vault, banknote handling and processing facility.

Public education is a key responsibility, and the RBI is in the process of creating a new microsite dedicated to banknotes. In addition, a programme to show banknote designs and security features in a 360 degree view is in development, as is information on banknote exchange and refund rules and games and posters to educate the public about their banknotes and security features. All of these have been progressed during the year.

Integration of the currency management function with the core banking solution, e-Kubor, is now complete, although some ancillary stages are still under development. This provides banknote data in near real time.

The RBI has started a field trial based on the 100 rupee note to see how varnished notes perform, with the goal of increasing note durability. As part of this, the production of varnish has been brought in-house to the Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL) ink manufacturing unit. This can now produce 1,500 tonne of offset, intaglio, letterpress and colourshift inks working on a two shift basis. It meets all the needs of the BRBNMPL for ink and supplies the two lines of the Security Printing and Minting Corporation of India Limited with ink.

Looking ahead to 2021-22, the RBI will buy new shredding and briquetting systems for the disposal of banknotes, clearing the backlog of notes needing disposal, and the creation of a state-of-the-art security feature testing facility. This will test the robustness of security features and their implementation.