Master Direction on Framework of incentives for Currency Distribution & Exchange Scheme for bank branches including currency chests

## Report on Reserve Bank of India's Currency Distribution and Exchange Scheme (CDES) **1. Executive Summary:** This report analyzes the Reserve Bank of India's (RBI) Master Direction on the Framework of Incentives for Currency Distribution Exchange Scheme (CDES) for bank branches, including currency chests, as issued on April 1, 2024. The core purpose of the CDES is to encourage bank branches to provide better customer service related to currency exchange and distribution, in alignment with the Clean Note Policy. Key findings highlight the financial incentives provided to banks for setting up infrastructure, exchanging soiled notes, distributing coins, and managing cash deposits, with specific considerations for underbanked regions and different types of currency chests. **2. Introduction:** This report aims to provide a comprehensive overview of the RBI's Master Direction on the CDES, based solely on the information provided in the policy text issued on April 1, 2024. The report will detail the policy's objectives, key provisions, affected stakeholders, and anticipated outcomes, offering insights relevant to the banking industry and related parties. **3. Policy Overview:** This is a new policy establishing the framework of incentives for the Currency Distribution and Exchange Scheme (CDES). * **Core Objective(s):** As stated in the text, the core objective is to encourage all bank branches, including currency chests, to provide better customer service to the public concerning currency distribution and exchange, furthering the objectives of the Clean Note Policy. **4. Background and Rationale:** * **Likely problem/issue the policy addresses:** Inferred from the text, the CDES aims to address the inadequate or inconsistent level of customer service provided by bank branches regarding currency exchange and distribution. The incentive framework suggests that the RBI seeks to improve the availability of clean notes and coins to the public, potentially addressing issues like hoarding of coins, reluctance of banks to exchange soiled notes, and insufficient infrastructure for currency management. **5. Key Provisions / Changes:** * **Main components, rules, and actions mandated by the entire provided text:** * **Financial Incentives:** The CDES establishes a framework of financial incentives (service charges) for banks based on their performance in providing currency-related customer service. * **Capital Cost Reimbursement:** Banks are eligible for reimbursement of 50% of capital expenditure for setting up and maintaining currency chests at centres with a population of less than 1 lakh (up to ₹50 lakh per CC). This increases to 100% for underbanked states in the North Eastern region. Reimbursement includes all taxes. * **Revenue Cost Reimbursement:** Banks are eligible for reimbursement of 50% of revenue expenditure inclusive of all taxes for the first 3 years. In the North Eastern region, 50% of revenue expenditure inclusive of all taxes is eligible for reimbursement for the first 5 years. * **Exchange of Soiled Notes Incentive:** Banks receive ₹2 per packet for adjudication of mutilated notes and for exchange of soiled notes over the counter for denominations up to ₹50 and below. The incentive is ₹2 per piece for adjudication of mutilated notes. * **Coin Distribution Incentive:** Banks receive ₹65 per bag for coin distribution and an additional ₹10 per bag for distribution in rural and semi-urban areas, subject to a Concurrent Auditor (CA) certificate. Specific quantities of different coin denominations constitute one bag for incentive calculation. * **Cash Deposit by Non-Chest Branches:** Currency chests can levy service charges on non-chest branches under the Linkage Scheme, with different rates for large modern CCs (₹8 per 100 pieces) and other CCs (₹5 per 100 pieces). * **Operational Instructions:** The incentives are paid on the soiled notes actually received in the Issue Office of the RBI, adjudicated notes are received along with soiled note remittances, and coin distribution incentives are based on net withdrawals from the currency chest. Banks do not need to submit separate claims for incentives. * **Verification and Inspection:** RBI Regional Offices will verify coin distribution through inspection of currency chests and incognito visits to branches. **6. Target Audience and Stakeholders:** The primary target audience and stakeholders are: * All banks operating in India. * Bank branches, including currency chests and non-chest branches linked to currency chests. * Members of the public who utilize currency exchange and distribution services at bank branches. * The Reserve Bank of India (RBI), as the implementing and monitoring body. **7. Implementation Aspects (Inferred):** * **Responsible agency/bodies:** The Reserve Bank of India (RBI) is the primary responsible body for implementing and overseeing the CDES. * **Procedures:** Currency chest branches are responsible for passing on the incentive to linked branches/chests on a pro-rata basis for soiled notes deposited, coins distributed, and mutilated notes adjudicated. The RBI Regional Offices will verify coin distribution through inspections. * **Timelines:** While no specific policy duration is mentioned in the provided text, the revenue cost reimbursement is applicable for the first 3 to 5 years based on the region. The operational instructions mentioned above should be followed during the entire policy period. **8. Expected Outcomes / Impact of Changes:** * **Likely intended outcomes:** The implementation of the CDES is expected to result in: * Improved availability of clean and genuine currency notes to the public. * Increased distribution of coins, especially in rural and semi-urban areas. * Enhanced customer service at bank branches regarding currency exchange and distribution. * Reduced circulation of soiled and mutilated notes. * Establishment of currency chests in underbanked regions. **9. Conclusion:** The RBI's Master Direction on the CDES represents a significant step towards improving currency management and customer service in the banking sector. By providing financial incentives, the RBI aims to encourage banks to actively participate in the distribution of clean notes and coins, exchange soiled notes efficiently, and establish currency chests in underbanked regions. The policy has the potential to positively impact the availability of currency to the public, reduce the circulation of soiled notes, and promote financial inclusion.

Key Entities Referenced