Master Direction on Framework of Incentives for Currency Distribution & Exchange Scheme for bank branches including currency chests based on performance in rendering customer service to the members of public

## Report on RBI 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), as detailed in RBI20222390 DCM CC No.G303.41.01202223 dated April 01, 2022. The policy aims to encourage bank branches, including currency chests, to improve customer service related to currency management, specifically concerning the exchange of soiled notes, distribution of coins, and establishment/maintenance of currency chests. The report highlights the financial incentives provided to banks for achieving these objectives and the operational guidelines for claiming these incentives. Key findings include the tiered incentive structure based on service type and location, and the emphasis on performance-based disbursement tied to RBI's receipt of soiled notes. **2. Introduction:** This report provides an informative overview of the RBI's Master Direction on the Framework of Incentives for Currency Distribution Exchange Scheme (CDES), based solely on the provided policy text (RBI20222390 DCM CC No.G303.41.01202223). The purpose is to elucidate the policy's objectives, key provisions, and potential impact on affected stakeholders. **3. Policy Overview:** * **Core Objective(s):** Based on the provided text, the core objectives of the CDES are to: * Improve customer service provided by bank branches in relation to currency management. * Promote the Clean Note Policy. * Encourage the distribution and exchange of currency, particularly soiled notes and coins. * Incentivize the establishment and maintenance of currency chests in underbanked areas. **4. Background and Rationale:** This is a new policy as indicated by the term "Master Direction" and the aim to formulate "a framework of incentives". The policy addresses the need to enhance currency management practices and promote the Clean Note Policy. The incentive structure suggests a pre-existing issue of insufficient participation by banks in providing currency exchange and distribution services, particularly in certain regions and for specific denominations. The policy aims to address this by providing financial incentives tied to performance. **5. Key Provisions / Changes:** As a new policy, the CDES establishes the following key provisions: * **Financial Incentives:** * **Currency Chests:** Reimbursement of capital and revenue expenditure for opening and maintaining currency chests in underbanked areas with population less than 1 lakh. 50% reimbursement of capital expenditure (up to ₹50 lakh) and 50% of revenue expenditure for the first 3 years. For the North Eastern region, reimbursement is 100% of capital expenditure (up to ₹50 lakh) and 50% of revenue expenditure for the first 5 years. * **Exchange of Soiled Notes:** ₹2 per packet for the exchange of soiled notes and adjudication of mutilated notes (up to the denomination of ₹50) over the counter. * **Distribution of Coins:** ₹65 per bag for coin distribution, with an additional ₹10 per bag for distribution in rural and semi-urban areas (subject to CA certificate verification). * **Operational Instructions:** * Incentives are paid based on the receipt of soiled notes at the RBI Issue Office. * Incentives for adjudicated notes are paid upon receipt of the notes sent via registered insured post to the RBI. * Currency chest branches are responsible for distributing incentives to linked branches/chests on a pro rata basis. * 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, including public and private sector banks. * Bank branches, especially those with currency chests. * Members of the public who use banking services, particularly for currency exchange and coin distribution. * Currency Chests and their linked branches **7. Implementation Aspects (Inferred):** * **Responsible agency/bodies:** The Reserve Bank of India (RBI), specifically the Department of Currency Management. RBI Regional Offices are responsible for verification. * **Timelines or procedures:** Incentives are paid on an ongoing basis, contingent on the receipt of soiled notes and adjudicated notes by the RBI. Coin distribution is verified periodically by RBI Regional Offices. Banks need to provide a Concurrent Auditor certificate for additional coin distribution incentives in rural and semi-urban areas. No specific timelines are mentioned in the text. * Banks do not need to submit a separate claim for the incentives **8. Expected Outcomes / Impact of Changes:** The expected outcomes of the CDES are: * Increased availability of currency exchange services for the public. * Improved circulation of clean notes. * Greater distribution of coins, particularly in rural and semi-urban areas. * Enhanced currency chest infrastructure in underbanked regions. * Improved customer service by banks. **9. Conclusion:** The RBI's Master Direction on the Framework of Incentives for Currency Distribution Exchange Scheme (CDES) is a significant policy aimed at improving currency management and customer service within the banking sector. By providing financial incentives for currency exchange, coin distribution, and the establishment/maintenance of currency chests, the RBI seeks to encourage banks to actively participate in promoting the Clean Note Policy and ensuring access to currency services for all members of the public. The performance-based nature of the incentives is designed to drive tangible improvements in service delivery and currency management practices.

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