Foreign banks face soiled note blues

Foreign banks with retail presence in the country are grappling with the issue of disposal of soiled and torn currency notes. The problem stems from the fact that all foreign banks, except one, do not have currency chests.

Banking sources said unusable currency notes with foreign banks amounts to about Rs 500 crore (Rs 5 billion). Currency chests are storehouses where currency notes and coins are stocked by designated bank branches on behalf of the Reserve Bank of India.

Notes and coins are distributed from these currency chests to other bank branches in their area. There are about 4,500 currency chests across the country. Standard Chartered Bank is the only foreign bank having a currency chest.

Citibank and HSBC had applied to the RBI for the permission to operate currency chest, but haven't yet heard from the apex bank.

The options being explored include arrangements for sharing currency chests of public sector banks, a senior foreign bank official said. Banks are required to sort notes into re-issuable and non-issuable categories. They have to put back in circulation only clean notes.

Unlike foreign banks, Indian banks have greater flexibility in managing damaged currency notes. Indian banks get more frequent access to RBI for exchange of damaged currency notes. Also, Indian banks have the advantage of currency chests.

Another foreign bank official said, "The moment a customer deposits money in a bank, the amount starts earning interest. But if the currency notes deposited are soiled or torn, the money, from the bank's perspective, becomes idle or dead currency."

The problem of soiled notes is acute in areas outside the metros. For example, in Ahmedabad, damaged currency notes kept in plastic covers are used for transactions.

In recent times, banks are looking at enhancing the capacities of their currency chests to cater to the growing business needs of the expanding client base, which includes retail operations, co-operatives and foreign banks, commodity/ bullion operations and government bodies such as railways, LIC, etc, and to meet the captive requirements of their branches and ATMs.