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Banks aid circulation of fake currency by flouting RBI rule

BANGALORE (April 19)—Banks often destroy fake Indian currency notes (FICN), when they receive them instead of passing them over to the Reserve Bank of India, according to various sources.

“That is a common thing,” said V.R. Gaikwad, former chief general manager of currency management at RBI. “The banks deny that, but it happens.”

According to a reply to a Right To Information request filed with National Crime Records Bureau, 6,208 FICNs were seized by state police departments across India. The total value of these notes was Rs. 2,458,920. The number of cases filed with respect to the same was 96. This figure witnessed a jump of 31 percent in 2009-10.  In 2010-11, there were only 60 cases registered.

A separate RTI filed with RBI revealed the following statistics across six states:

Banks often receive deposits in large cash bundles from long-standing customers of the bank, for example, people who have maintained an account with the bank for more than 10 years. In such cases, banks, instead of following the RBI-mandated procedure of impounding the FICN, either destroy it or return it to the customer, asking him to replace it, thus avoiding paperwork, according to Gaikwad.

According to the RBI master circular on “Detection and Impounding of Counterfeit Notes,” issued on July 1, 2011, “A counterfeit note detected in the cash received by the bank branch/Treasury, across the counter shall be impounded in the presence of the tenderer. It shall be forwarded to the local police authorities for investigation by filing an FIR.”

This particular text in the circular is highlighted, showing the importance of this point: “In no case, the counterfeit notes should be returned to the tenderer or destroyed by the bank branches/treasuries.”

Customers, especially high-net-worth individuals like those involved in the diamond business, often bring cash in boxes, according to Gaikwad. In all that currency, if one or two notes are detected to be FICN, banks hesitate to involve a valued customer in the arduous legal process.

“Police also take advantage,” said Gaikwad. “They harass people, especially small customers who genuinely don’t know where they came across the cash. They will interrogate. Sometimes certain police just see this as a way to earn a bribe.”

There have also been cases where the cashier replaces genuine currency notes with FICNs, thus introducing FICNs in the cash flow, Gaikwad said. However, these cases are rare and are seen in border areas like Srinagar or places which witness turmoil.

“Person who gives counterfeit note has to be given a receipt as per RBI rules,” said B. Dogra, vice president of Axis Bank. “We consider it a serious offense and take action against any employee who doesn’t follow the rules.”

There have been instances where FICNs are detected in cash withdrawn from ATMs. The person who withdraws this cash usually goes to the concerned bank to exchange the FICN.

“There is no way to know whether the person got the cash in our ATM,” said Dogra. “He might have received it anywhere. We still undergo the RBI rules, in such cases.”

Gaikwad has handled cases of FICNs at the RBI from 1998 to 2004 before retirement and was also chairman of the Indian government appointed committee to draft rules to regulate handling of FICNs in India. He said he himself once withdrew a fake note from an ATM.

“When I went to branch of the concerned bank, they replaced the note without any fuss,” said Gaikwad. “They did not issue me a receipt or anything, as I was long standing customer of the bank.”

Gaikwad recognized it was a fake note because he was specifically trained to do so. That is not the case for all.
Pratik Tandale, 25, a software engineer, withdrew Rs. 24,000 in January 2010 from a State Bank of India ATM. He received two fake Rs. 500 bills. When he went to pay the amount to the travel agency, their machine detected they were bogus.

Gaikwad said the RBI has created much more awareness about the situation compared with 1998.

“But it is necessary to remove gray areas in the policy to stop the circulation of fake notes,” he said.


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