In the absence of fresh RBI guidelines on exchanging mutilated notes, middlemen make a killing

Inordinate delay on the part of Reserve Bank of India (RBI) in revising guidelines for exchange of soiled/mutilated currency notes is proving costly for citizens who are left with damaged legal tender in denominations of ₹500 and ₹2,000. Unable to exchange them in any bank, they are forced to strike losing deals with middlemen waiting in droves near RBI.

The currency, issued about 16 months ago after the note-ban/demonetisation exercise that sent all existing ₹500 and ₹1,000 notes out of circulation, is being traded for much less than its face value owing to the hapless situation of customers.

“I have six ₹2,000 notes and a few ₹500 ones which are damaged. When I visited the nearest bank hoping to exchange them, they said they were not accepting them, and directed me to RBI. But RBI regional office too refused to accept the notes, citing some communication it was yet to receive from the head office,” said V.Seshu, an employee of the State forest department.

Reportedly, the central office in Mumbai has issued directions to its regional offices and other commercial banks not to accept soiled notes of ₹500 and ₹2,000 denominations till it issues fresh guidelines.

The usual process of exchange involves measuring the notes against a corresponding grid in order to assess the extent of damage and the value to be refunded. The refund rules notified four months before the note-ban pertained to demonetised currency only, and due to the size differences between the earlier currency and the new, the same cannot be applied to the latter.

“We have been asked not to accept these notes. We need to wait till the RBI issues valuation guidelines for the damaged notes. Still, the customers receiving those notes from ATMs can exchange them by visiting the corresponding branch and producing the slip from the ATM,” says a bank employee on the condition of anonymity.

Many customers, however, destroy the slip as soon as they receive cash from the machine.

“I draw huge sums during the first week of every month since I have to pay salary to my workers. It is difficult to check for the damaged ones among so many notes,” says P. Trinadh Rao, a businessman, complaining that the quality of the new currency is bad and prone to easy damage.

He reportedly exchanged the notes a number of times with middlemen for an amount much lesser than what he would have got from bank.

“They took a cut of ₹400-500 for ₹2,000 notes and ₹100-200 for ₹500 notes. But I had no other choice, as I needed to keep the money in rotation, and could not afford to save the notes till they could be exchanged legally,” Mr. Rao rues.