RBI/2012-13/562
DCM (FNVD) No.5840/16.01.05/2012-13

June 27, 2013

The Chairman and Managing Directors/
Chief Executives Officers of
All Scheduled Commercial Banks

Madam / Sir,

Detection and Reporting of counterfeit notes

Please refer to the paragraph 115 (extract enclosed) of the Monetary Policy Statement for 2013-14 announced on May 3, 2013. It was indicated therein that the guidelines on the scheme of incentives for detection and reporting of counterfeit notes and the scheme of penalties for non-detection and non-reporting of counterfeit notes, by banks, would be issued by end-June 2013. A reference is also invited to Para 127 (extract enclosed) of the Monetary Policy Statement for 2012-13 announced on April 17, 2012, wherein it was indicated that banks may streamline their system in a manner which will make them bear the risk of counterfeit banknotes rather than the common man who unknowingly comes in possession of such notes and our Circular   DCM (FNVD) No. 2165/16.21.005/2012-13 dated November 16, 2012 (copy enclosed) advising that failure on the part of the banks to impound counterfeit notes detected at their end will be construed as willful involvement of the bank concerned in circulating counterfeit notes, and appropriate penalty will be imposed.

2. It has been decided to compensate the banks 25% of the loss incurred in respect of counterfeit notes of `100 and above detected by them and reported to RBI and Police authorities.

3. The procedure for detection and reporting counterfeit notes and penalty there under have been reviewed in light of the above instructions as per details enclosed in the Annex. All other instructions remain unchanged.

4. These instructions become effective from July 1, 2013, and the banks should commence reporting to RBI from August 2013, as per format enclosed.

5. Kindly acknowledge receipt.

Yours faithfully,

(B. P. Vijayendra)
Principal Chief General Manager
Encl: As above

1. Monetary Policy Statement 2012-13 – Extract

Detection and Reporting of Counterfeit Banknotes

115.  In view of the recommendation of the DPSC for addressing the menace of counterfeit notes, it has now been decided that in order to encourage banks to report counterfeit notes detected by them, a scheme of incentives for banks will be introduced. Simultaneously, the existing penalty for non-detection and non-reporting of counterfeit notes by banks is being revisited.

Detailed guidelines will be issued by end-June 2013.

2. Monetary Policy Statement 2012-13 – Extract

Detection and Reporting Mechanism of Counterfeit Banknotes

127. It has already been stipulated that bank notes in the denomination of `100 and above are processed through machines conforming to the standards/parameters prescribed by the Reserve Bank,  before  issuing  them  over their counters or through ATMs. The stipulation has been made, inter alia, to ensure that counterfeit notes are detected at bank/branch level itself, thereby preventing their entry back into circulation. It is also observed that despite the above measure and after rationalising the procedure of filing first information reports (FIRs), the detection and subsequent reporting of counterfeit bank notes by banks continue to be inadequate. This has serious repercussions in that the Reserve Bank is not in a position to assess the number of counterfeit notes in circulation and its ramifications for the economy. In order to address the above concerns, banks are advised:

• to ensure that the notes received over the counters are re-circulated only after ensuring their proper authentication through machines; and

• to streamline their system in a manner which will make them bear the risk of counterfeit bank notes rather than the common man who unknowingly comes in possession of such notes.