Benefits of Introducing Varnished Banknotes

22 Nov 2018  Thu

The Reserve Bank of India has made a proposal for introducing varnished banknotes to increase their life and durability. Old 500 Rs and 1000 rupees notes were banned after demonetisation in November 2016 and new Rs 500 and Rs 2000 currency notes were introduced in 2017. New Rs 200 notes were launched in August 2017. Gradually, new Rs 50, Rs 10 and Rs 100 notes were also circulated.

Now that new notes have been introduced for almost every denomination, the RBI is looking to increase the durability of banknotes by applying varnish on a trial basis. According to RBI officials, this procedure will reduce banknote replacement requirements and printing expenditure.

Currently, mutilated banknotes are scanned by the Prescribed Officer while soiled banknotes are directly exchanged. Notes get soiled over a period of time due to various factors like human touch, sweat, grease, dirt, dust etc. It may also lead to tears, holes, limpness, print abrasion. Watermarks and other features fade away.

In FY17, the cost of printing new notes after demonetisation was about Rs 9.5 lakh crore. As per the Minimum Reserve System which was introduced in 1957, the RBI should maintain up to Rs 200 Crore worth property in gold reserves and foreign currency. Once the number is achieved, the RBI can print notes depending on economic requirement. RBI issued notes worth Rs 19,119.60 billion in 2018 and notes worth Rs 15,063.31 in 2017.

Its printing cost was reduced from Rs 79.65 billion in FY17 to Rs 49.12 billion in FY18 due to reduced supply of notes. 27.7 billion pieces of soiled banknotes were disposed in FY18 but only 12.5 billion pieces were discarded in 2017. 522,783 pieces of counterfeit notes were also detected by banks. By introducing varnished notes, RBI will reduce printing costs considerably which will lead to profits.

A surplus of Rs 500 billion was transferred to government in 2018 while Rs 306.59 billion was transferred in FY17. RBI’s dividend was the lowest in 2016-17, due to demonetisation and high printing costs.

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