NEW DELHI: A top secret study by security agencies along with the Indian Statistical Institute (ISI) on the fake currency situation was key to the government's decision to demonetise Rs 500 and Rs 1000 notes.The study was presented in February and in March, Prime Minister Narendra Modi is believed to have asked his team to start working in this direction. The decision at the highest level was to crack down on black money and fake currency in one shot.The report, accessed by ET, revealed that Rs 400 crore of Fake Indian Currency Notes (FICN) were in circulation. At the same time, the study noted: "This has remained about the same over the last four years (2011-12 to 2014-15)."The study found fewer counterfeit Rs 1000 notes than Rs 500 ones in circulation, but there were almost an equal number of fakes of Rs 500 and Rs 100. The government, however, decided against scrapping Rs 100 notes. The study, which had the National Investigation Agency partnering ISI, by itself never suggested any radical demonetisation.It identified five action points related to improving detection and reporting by financial institutions. "Implementation of the suggestions is likely to reduce the quantum of FICN by 50 per cent over a period of 3-5 years," the report said.The study was submitted to National Security Adviser Ajit Doval, and after intense deliberations over the subsequent weeks, it was felt that there was no point taking incremental steps, officials told ET. The Reserve Bank of India was then included in the discussions, leading to a larger call on demonetising Rs 500 and Rs 1000 notes.In contrast to countries such as Britain, Canada and Mexico, the study found a higher rate of occurrence of FICN in India — estimated at 250 pieces per million. "It was further estimated that attempts are being made to push about Rs 70 crore into the Indian economy every year out of which only one-third is seized," the report said.The study also revealed that 80 per cent of the total FICN detection was done by three private sector banks — HDFC Bank, ICICI Bank and Axis Bank. "Immediate steps need to be taken to improve the reporting by other financial institutions," the report said.Non-banking financial institutions were identified as another big loophole where large volumes of cash are handled but which fall outside the purview of the detection system.