## Report on RBI Master Direction DCM CC No.G403.41.01/2016-17: Currency Distribution Exchange Scheme (CDES)
**1. Executive Summary:**
This report analyzes the Reserve Bank of India's (RBI) Master Direction DCM CC No.G403.41.01/2016-17, dated July 20, 2016, concerning the Currency Distribution and Exchange Scheme (CDES). This is a *new* policy, not an amendment. The core purpose of this scheme is to incentivize banks to provide better customer service regarding the exchange of notes and coins, in line with the objectives of the Clean Note Policy. The key finding is that the scheme offers financial incentives to banks for various activities, including opening and maintaining currency chests, exchanging soiled notes, distributing coins, and installing machines for cash-related retail services. The incentives are performance-based, aiming to improve the availability of clean currency for the public.
**2. Introduction:**
The purpose of this report is to provide an informative overview of the RBI Master Direction DCM CC No.G403.41.01/2016-17, focusing on the Currency Distribution Exchange Scheme (CDES). This analysis is based solely on the provided policy text and aims to elucidate its key features, objectives, and implications for the banking sector.
**3. Policy Overview:**
* This is a *new* policy directive establishing the Currency Distribution Exchange Scheme (CDES).
* **Core Objective(s):** As inferred from the text, the core objectives of the CDES are:
* To improve customer service at bank branches regarding the exchange of notes and coins.
* To promote the Clean Note Policy by incentivizing banks to handle currency efficiently.
* To ensure adequate distribution of coins to the public.
**4. Background and Rationale:**
Since this is a new policy, the rationale can be inferred. The CDES likely addresses the following issues:
* **Inadequate Customer Service:** Potential deficiencies in the services provided by banks related to currency exchange and distribution, leading to public dissatisfaction.
* **Soiled Note Circulation:** The circulation of soiled and mutilated notes, which contradicts the Clean Note Policy. Incentivizing exchange addresses this.
* **Coin Scarcity:** Issues with the availability and distribution of coins, hindering small transactions and retail activities.
**5. Key Provisions / Changes:**
As a new policy, the following are the main components and actions mandated by the provided text:
* **Financial Incentives:** The CDES provides financial incentives to banks for the following services:
* **Opening and Maintaining Currency Chests:** Reimbursement of capital and revenue expenditure for establishing currency chests in under-banked states with a population of less than one lakh. Higher reimbursement is provided for the North Eastern region.
* **Exchange of Soiled Notes:** Incentive of ₹2 per packet for the exchange of soiled notes over the counter.
* **Adjudication of Mutilated Notes:** Incentive of ₹2 per piece for the adjudication of mutilated notes.
* **Distribution of Coins:** Incentive of ₹25 per bag for the distribution of coins over the counter, based on withdrawals from currency chests.
* **Installation of Machines:** Reimbursement for the installation of Cash Recyclers and ATMs dispensing lower denomination notes (up to ₹100). The reimbursement amount varies based on the location (Metro/Urban vs. Semi-urban/Rural areas).
* **Operational Guidelines:**
* Incentives for soiled and mutilated notes are paid automatically based on receipts at RBI Issue Offices.
* Banks must submit Annual Plans for machine purchases and currency chest establishment to RBI Issue Offices by April 15th of each year.
* Claims for machine installation incentives must be submitted quarterly to the respective RBI Issue Office.
* **Coin Distribution Checks:** RBI Regional Offices will verify coin distribution through inspections and incognito visits.
**6. Target Audience and Stakeholders:**
The primary target audience and stakeholders are:
* **All Banks:** The policy directly affects all banks, especially those involved in currency handling and distribution.
* **Customers/Public:** The ultimate beneficiaries are the members of the public who rely on banks for currency exchange and coin availability.
* **RBI Issue Offices and Regional Offices:** These are the agencies responsible for implementing and monitoring the scheme.
**7. Implementation Aspects (Inferred):**
* **Responsible agency/bodies:** RBI Issue Offices and Regional Offices are responsible for the implementation and oversight of the CDES.
* **Timelines:**
* Annual Plans for machine purchases and currency chest establishment must be submitted by April 15th each year.
* Claims for machine installation incentives are to be submitted quarterly, within 30 days of the quarter's end.
* **Procedures:** The policy outlines procedures for claiming incentives for soiled/mutilated notes and machine installations. Banks must pass on the incentives for soiled notes to their linked branches on a pro-rata basis. Coin distribution is subject to verification by RBI.
**8. Expected Outcomes / Impact of Changes:**
The likely intended outcomes of the CDES are:
* **Improved Customer Service:** Enhanced efficiency in currency exchange and distribution services at bank branches.
* **Increased Availability of Clean Notes:** Greater circulation of clean and usable currency, reducing the prevalence of soiled notes.
* **Better Coin Distribution:** Improved availability of coins for small transactions, benefiting retail customers.
* **Increased Investment in Infrastructure:** Banks may be incentivized to invest in cash recyclers and ATMs dispensing lower denomination notes, improving cash handling infrastructure.
**9. Conclusion:**
The RBI's Master Direction on the Currency Distribution Exchange Scheme (CDES) is a significant initiative aimed at improving customer service, promoting the Clean Note Policy, and ensuring adequate coin distribution. By providing financial incentives to banks, the RBI aims to encourage better currency handling practices and enhance the overall quality of currency services available to the public. The scheme's success will depend on effective implementation by banks and oversight by RBI regional offices.
Key Entities Referenced
Madam Dear Sir: Salutation used in the Master Direction
Master Direction on Currency Distribution Exchange Scheme CDES: Subject of the Master Direction
RBI Act, 1934: Reserve Bank of India Act, 1934
Banking Regulation Act, 1949: Banking Regulation Act, 1949
Bank: Refers to the Reserve Bank of India (RBI)
Clean Note Policy: RBI's policy to provide good quality currency notes to the public
Currency Distribution and Exchange Scheme CDES: Scheme of incentives to ensure better customer services by bank branches
RBI website: Website of the Reserve Bank of India
www.rbi.org.in: URL of the Reserve Bank of India's website
P. Vijaya Kumar: Chief General Manager
North Eastern region: A geographical area eligible for increased reimbursement for revenue and capital expenditure
RBI Regional Offices: Regional Offices of the Reserve Bank of India
Cash Recyclers: A type of machine that extends cash-related retail services to the public
ATMs dispensing lower denomination notes: Automated Teller Machines distributing lower denomination notes
Issue Office of the RBI: The office where soiled notes are received and incentives are paid.
Link Office: The office of the bank concerned through which claims for incentives are submitted.
RBIDCM20161736 Master Direction DCM CC No.G403.41.01201617: Master Direction document identifier
July 20, 2016: Date of the Master Direction
The Chairman and Managing Director Chief Executive Officers, All Banks: Addressees of the Master Direction
RBI/DCM/2016-17/36
Master Direction DCM (CC) No.G-4/03.41.01/2016-17 July 20, 2016
The Chairman and Managing Director /
Chief Executive Officers,
All Banks
Madam / Dear Sir,
Master Direction on Currency Distribution & Exchange Scheme (CDES) based on
performance in rendering customer service to the members of public
In terms of the Preamble and under Section 45 of the RBI Act, 1934, and 35 A of the
Banking Regulation Act, 1949, the Bank issues guidelines / instructions for realising the
objectives of our Clean Note Policy. With a view to sustain these objectives, the Bank
has formulated a scheme of incentives titled Currency Distribution and Exchange
Scheme (CDES) in order to ensure that all bank branches provide better customer
services to member of public.
2. The Master Direction enclosed incorporates updated guidelines / circulars on the
subject. The Direction will be updated from time to time as and when fresh instructions
are issued.
3. This Master Direction has been placed on RBI website at www.rbi.org.in.
Yours faithfully,
(P. Vijaya Kumar)
Chief General Manager
Encl : As aboveAnnex
1. Introduction –
The Currency Distribution & Exchange Scheme (CDES) for bank branches including
currency chests has been formulated in order to ensure that all bank branches provide
better customer service to members of public with regard to exchange of notes and coins,
in keeping with the objectives of Clean Note Policy.
2. Incentives
As per the scheme, banks are eligible for the following financial incentives for providing
facilities for exchange of notes and coins:
Sr. Nature of Service Particulars of Incentives
No.
i) Opening of and maintaining a. Capital Cost: Reimbursement of
currency chests at centers 50% of capital expenditure subject to
having population of less than 1 a ceiling of ` 50 lakh per currency
lakh in under banked States chest. In the North Eastern region
up to 100% of capital expenditure is
eligible for reimbursement subject to
th e ceiling of ` 50 lakh.
b. Revenue cost: Reimbursement of
50% of revenue expenditure for the
first 3 years. In the North Eastern
region 50% of revenue expenditure
will be reimbursed for the first 5
years.
ii) Exchange of soiled notes/ a. Exchange of soiled notes – ` 2
adjudication of mutilated per packet for exchange of soiled
banknotes over the counter at notes up to denomination ` 50
bank branches
b. Adjudication of mutilated
note s – ` 2 per piece
1iii) Distribution of coins over counter i. ` 25 per bag for distribution of coins
over the counter.
ii. The incentives would be paid on the
basis of withdrawal from currency
chest, without waiting for claims from
banks.
iii. Banks may put in place a system of
checks and balances to ensure that
coins are distributed to retail customers
in small lots and not to bulk customers.
iv. The distribution of coins shall be
verified by RBI Regional Offices
through inspection of currency chest /
incognito visits to branches etc.
iv) Installation of Machines which The maximum amount of reimbursement
extend cash related retail for the machines will be as follows –
services to the public like –
For Metro / Urban areas –
1. Cash Recyclers;
2. ATMs dispensing lower
1. Cash Recyclers – 50% of the actual
denomination notes (i.e.
cost of the machine or ` 2,00,000
up to denomination ` 100)
whichever is lower
Note - ATMs distributing higher
2. ATMs dispensing lower denomination
denominations of ` 500 and
notes (up to denomination ` 100) –
above are not eligible for this
50% of the actual cost of the machine
reimbursement
or ` 2,00,000 whichever is lower
For Semi-urban / Rural areas –
1. Cash Recyclers – 60% of the actual
cost of the machine or ` 2,50,000
whichever is lower
2. ATMs dispensing lower denomination
notes (up to denomination ` 100) –
60% of the actual cost of the machine
or ` 2,50,000 whichever is lower
23. Operational Guidelines to avail the incentives -
3.1 Performance based incentives -
i) The incentives will be paid on the soiled notes actually received in the Issue Office
of the RBI. Banks need not submit a separate claim in this regard. Currency chest
branch will have to pass on the incentive to the linked branches for the soiled notes
tendered by them on a pro-rata basis.
ii) Similarly, incentive will be paid in respect of the adjudicated notes received along
with the soiled note remittances / sent separately by registered / insured post in a sealed
cover to the RBI. No separate claim is required to be made.
3.2 Incentives for installation of machines
i) The banks intending to purchase various machines as also establish currency
chests during the period from July 01st to June 30th of a year, may submit their Annual
Plans containing the details of the machines and the cost, to our Issue Offices latest by
April 15 of every year on an ongoing basis. Our Issue offices, on receipt of the plans, may
advise the maximum amount of reimbursement permissible to each bank for that year.
ii) The claims for incentives for installation of Cash Recyclers and ATMs dispensing
lower denomination notes should be submitted to the respective Issue Office of RBI on
quarterly basis within 30 days from the close of the respective quarter through the Link
Office of the bank concerned. Such claims may however be submitted only after full
payment is made to the vendors for the machines.
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