A day after the Reserve Bank of India (RBI) proposed to withdraw the Rs 2,000 denomination bank notes from circulation, State Bank of India chairman Dinesh Kumar Khara said the withdrawal won’t have much impact on the economy as Unified Payments Interface (UPI) transaction is expected to fill the gap.
“Almost 63 to 64 per cent of GDP is now being supported either by UPI or currency. UPI is almost contributing about 50-51 per cent of the GDP of the economy. The remaining 13 per cent is currency. So, when it comes to the withdrawal of Rs 2,000 currency notes, which was introduced in 2016, the impact could be less. At that time the intention was to help the demonetisation move. Initially, the Rs 2000 note constituted almost 50 per cent of the total circulation. That has now come down to about 10.8 per cent to 11 per cent. This gap has been picked up by UPI,” SBI chairman Khara said in an exclusive interactive session with BT TV’s Siddharth Zarabi.
The central bank on Friday said that despite the recall, the existing Rs 2,000 denomination banknotes will continue to be legal tender.
RBI said it has asked banks to stop issuing Rs 2,000 notes with immediate effect. It added that its 19 regional offices and other banks will start taking Rs 2,000 notes for exchange with lower denomination ones.
Explaining its move, RBI said: “Banknotes in other denominations are available in adequate quantities.”
Explaining the process and how will it pan out: Khara said: “The RBI has clearly mentioned that the Rs 2000 note will continue to be legal tender. They have also created a facility to make the exchange process of Rs 2000 notes from either RBI offices or banks. This has been done to facilitate the exchange of Rs 2,000 currency note into other denominations.”
When asked about the shortage of Rs 500 notes in circulation, Khara said: “I don't think so there will be any shortage as a significant part of transactions are now being done by UPI. Some augmentation will perhaps be required. The major part of the transaction will be taken care of by the UPI.”
The RBI's surprise move came amid concerns about the highest denomination notes being used to hoard black money. The RBI had stopped printing Rs 2,000 notes in 2018-19 and the notes were rarely in circulation.
Also read: Rs 2,000 notes withdrawn: No daily limit on number of times to exchange notes, say govt sources
Finance Secretary TV Somanathan told BT TV on Friday, "Rs 2,000 note has served its need and it is time to move on to smaller denominations. Our aim is to encourage digital transactions. Rs 2,000 note continues as a legal tender."
The central bank has asked the public to deposit Rs 2,000 bank notes into their bank accounts and/or exchange them into banknotes of other denominations at any bank branch, which will be done free of cost.
Deposit into bank accounts can be made in the usual manner, that is, without restrictions and subject to extant instructions and other applicable statutory provisions, RBI said.
Also, the exchange of Rs 2,000 banknotes can be made through Business Correspondents up to a limit of Rs 4,000 per day for an account holder.
"In order to ensure operational convenience and to avoid disruption of regular activities of bank branches, exchange of Rs 2,000 bank notes into bank notes of other denominations can be made up to a limit of Rs 20,000 at a time at any bank starting from May 23, 2023," the RBI said.
Also read: Rs 2,000 notes recalled: What will happen to your notes? RBI issues FAQs
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