**Report on Reserve Bank of India Master Direction: Scheme of Penalties for Bank Branches and Currency Chests**
**1. Executive Summary:**
This report analyzes the Reserve Bank of India's (RBI) Master Direction pertaining to the Scheme of Penalties for bank branches and currency chests exhibiting deficiencies in customer service to the public. The core purpose of this policy is to ensure proper customer service, uphold the Clean Note Policy, and enhance the operational efficiency of currency management. Key findings highlight the specific penalties for irregularities like shortages, counterfeit notes, mutilated notes, and non-compliance with operational guidelines. This direction directly affects all banks and their branches, especially those operating currency chests.
**2. Introduction:**
This report aims to provide a comprehensive overview of the RBI's Master Direction on the Scheme of Penalties for bank branches and currency chests. The analysis is based solely on the provided policy text, focusing on its objectives, provisions, and potential impact.
**3. Policy Overview:**
This is a *new* policy direction that establishes a Scheme of Penalties.
* **Core Objective(s):** As inferred from the text, the core objectives are to:
* Ensure all bank branches and currency chests provide adequate customer service.
* Support the Clean Note Policy by ensuring the availability of good quality banknotes.
* Enhance the operational efficiency of currency management across bank branches and currency chests.
* Ensure sufficient cash is available to the public through ATMs.
**4. Background and Rationale:**
This new policy addresses the need for banks and their branches, including currency chests, to adhere to customer service standards and operational guidelines related to currency management. The policy likely stems from concerns regarding inconsistencies in service delivery, instances of non-compliance with RBI regulations, and the need to improve the overall quality and management of currency in circulation. The non-replenishment of ATMs would cause harm to the public and this policy direction targets to improve this.
**5. Key Provisions / Changes:**
As this is a new policy, the key provisions detail the rules and actions mandated by the entire provided text:
* **Penalties for Shortages:** Penalties are imposed for shortages of notes in soiled note remittances (SNRs) and shortages of notes and coins in currency chest balances. The penalty varies depending on the denomination of the missing notes or coins, including loss recovery.
* **Counterfeit Note Detection:** Banks are required to use machines to authenticate banknotes. Failure to impound counterfeit notes detected at their end is considered a willful involvement in circulating counterfeit notes, leading to penalties based on DCM FNVD No.G416.01.05202526 dated April 1, 2025.
* **Mutilated Notes:** Penalties are imposed for mutilated notes, including deliberately cut and built-up notes, found in soiled note remittances and currency chest balances. Penalty is 50 per piece plus the loss.
* **Non-compliance with Operational Guidelines:** A penalty of ₹5,000 is levied for each instance of non-compliance with operational guidelines by currency chests, detected by RBI officials. This includes issues like non-functioning CCTV cameras, improper handling of cash documents, non-utilisation of Note Sorting Machines (NSMs), and failure to conduct surprise verifications of currency chest balances. The penalty is enhanced to ₹10,000 for repeated irregularities.
* **Violation of Agreement/Deficiency in Service:** Penalties range from ₹10,000 for violations of agreements with the RBI to ₹5 lakh for multiple instances of agreement violation or service deficiency. Examples include not issuing coins, refusing to exchange soiled notes, denying services to linked branches, and non-acceptance of lower denomination notes.
* **Non-replenishment of ATMs:** Penalties are levied based on circular DCMRMMT No.S15311.01.01202122 dated August 10, 2021 and subsequent instructions for failure to replenish ATMs with sufficient cash.
* **Appellate Authority:** Banks can appeal penalty decisions to the Regional Director/Chief General Manager/Officer-in-Charge of the Regional Office within one month. Penalty waiver requests are considered only if submitted through the CyM CC portal.
**6. Target Audience and Stakeholders:**
The primary target audience and stakeholders directly affected by this policy are:
* All banks operating in India.
* Bank branches, particularly those handling currency exchange and deposit.
* Currency chests and their managing branches.
* Members of the public who avail banking services related to currency exchange and deposits.
* Linked branches of other banks.
* Small Finance Banks and Payment Banks (with exceptions).
**7. Implementation Aspects (Inferred):**
* **Responsible Agency/Bodies:** The Reserve Bank of India (RBI), particularly the Department of Currency Management, is the primary body responsible for implementing and overseeing this policy. The Officer-in-Charge of the Issue Department of the Regional Office is the Competent Authority.
* **Timelines/Procedures:**
* Penalties are to be levied immediately upon detection of the irregularity.
* Surprise verification of currency chest balances must be conducted bi-monthly and semi-annually.
* Appeals against penalty decisions must be made within one month from the date of debit.
* Waiver requests must be made in the CyM CC portal.
**8. Expected Outcomes / Impact of Changes:**
The likely intended outcomes of this policy are:
* Improved customer service at bank branches and currency chests.
* Reduced instances of counterfeit and mutilated notes in circulation.
* Increased compliance with operational guidelines related to currency management.
* More efficient functioning of currency chests.
* Better availability of cash in ATMs.
* Greater adherence to the Clean Note Policy.
**9. Conclusion:**
The RBI's Master Direction on the Scheme of Penalties for bank branches and currency chests is a significant regulatory measure designed to enhance customer service, improve currency management practices, and maintain the integrity of the currency in circulation. The clear articulation of penalties for various irregularities provides a framework for banks to improve their operations and ensure compliance with RBI guidelines. This policy is likely to have a positive impact on the overall efficiency and reliability of the banking system.
Key Entities Referenced
RESERVE BANK OF INDIA: The central bank of India, which issued the document.
RBI Act: Refers to the Reserve Bank of India Act, 1934. It provides the legal framework for the RBI's operations.
Banking Regulation Act, 1949: An act that empowers the Reserve Bank of India to issue guidelines/instructions.
Clean Note Policy: A policy by the Reserve Bank of India to ensure the availability of good quality banknotes to the public.
Scheme of Penalties for bank branches and currency chests: A scheme formulated by the Bank for deficiency in rendering customer service to the members of public.
AnnexI: Master Direction incorporating the updated guidelines circulars on the subject.
Annexes II: The Frequently Asked Questions FAQs
Annexes III: Illustrations on Master Direction Scheme of Penalties
Sanjeev Prakash: Chief General Manager-In-Charge at Reserve Bank of India.
DEPARTMENT OF CURRENCY MANAGEMENT, CENTRAL OFFICE: A department within the Reserve Bank of India.
MUMBAI 400001: Location of Department of Currency Management.
Memorandum of Agreement MoA: A general agreement entered between the Reserve Bank of India and the bank concerned, setting out the terms and conditions governing the entrustment of currency chest responsibilities to the bank.
Linkage Scheme: Scheme formulated by RBI mainly with a view to provide chest facilities to all nonchest bank branches at the same centre as far as possible.
DCM FNVD No.G416.01.05202526: Refers to the instructions issued by DCM FNVD dated April 1, 2025
DCMRMMT No.S15311.01.01202122: Refers to the Scheme of Penalty for nonreplenishment of ATMs circular dated August 10, 2021
Small Finance Banks: A type of bank allowed to exchange mutilated and defective notes at their option up to two years from commencement.
Payment Banks: A type of bank allowed to exchange mutilated and defective notes at their option up to two years from commencement.
Regional Office: The location of currency chest bank branch under whose jurisdiction the defaulting bank is located.
CyM CC portal: A portal where Penalty waiver request would be considered only if the application for the same is made.
भारतीय �रज़वर् बैंक
_____________RESERVE BANK OF INDIA______________
www.rbi.org.in
RBI/DCM/2025-26/131
DCM (CC) No.G-1/03.44.001/2025-26 April 01, 2025
The Chairman / Managing Director / Chief Executive Officer
All banks
Madam / Dear Sir,
Master Direction – Scheme of Penalties for bank branches and currency chests for
deficiency in rendering customer service to the members of public
In terms of the Preamble to and Section 45 of the Reserve Bank of India Act, 1934 (RBI
Act) and Section 35A of the Banking Regulation Act, 1949, Reserve Bank of India issues
guidelines / instructions for realising the objectives of Clean Note Policy and enhancing
the operational efficiency of currency management. In order to ensure that all bank
branches provide proper customer service, the Bank has formulated a Scheme of
Penalties for bank branches including currency chests, for deficiency in rendering
customer service to the members of public.
2. The Master Direction incorporating the updated guidelines / circulars on the subject
is at Annex-I. The Frequently Asked Questions (FAQs) and few Illustrations are at
Annexes II and III respectively.
Yours faithfully
(Sanjeev Prakash)
Chief General Manager-In-Charge
Encl: As above
___________________________________________________________________________________________________________________________________________
मुद्रा प्रबंध िवभाग, केंद्रीय कायार्लय, चौथी मंिजल, अमर भवन, सर पी .एम .रोड, मुंबई - 400 001
DEPARTMENT OF CURRENCY MANAGEMENT, CENTRAL OFFICE, AMAR BUILDING, 4TH FLOOR, SIR P M ROAD, MUMBAI - 400001
फोन TELEPHONE No. 22663000 / 22604000 फै � FAX NO. 22662442
ई-मेल E-mail : cgmincdcm@rbi.org.in
िह�ी आसान है, इसका प्रयोग बढ़ाइएAnnex-I
Master Direction on the Scheme of Penalties for bank branches and currency chests
for deficiency in rendering customer service to members of public
1. The Scheme of Penalties for bank branches and currency chests has been formulated to
ensure that all bank branches / currency chests provide customer service to the members
of public / linked bank branches keeping in view the objectives of Clean Note Policy and
enhancing operational efficiency.
2. Penalties
Penalties to be imposed on banks for non-compliance with operational guidelines and
Memorandum of Agreement, deficiencies in remittances sent to RBI, exchange of notes,
operations of currency chests, replenishment of cash in ATMs, etc., are as follows:
Sr.
Nature of Irregularity Penalty
No.
i. Shortages of notes in Soiled Note For notes in denomination up to ₹50/-
Remittances (SNRs) and shortages
of notes and coins in currency chest ₹50/- per piece in addition to the loss.
balances
For notes in denomination of ₹100/- & above
Equal to the value of the denomination per piece
in addition to the loss.
For coins in all denominations
Equal to the value of the denomination per piece
in addition to the loss.
The recovery of loss and levy of penalty shall be
done immediately on detection of shortage,
irrespective of number of pieces.
ii. Counterfeit notes detected in soiled Banknotes tendered over the counter shall be
note remittances and currency chest examined for authenticity through machines.
balances
Similarly, banknotes received directly at the back
office / currency chest through bulk tenders shall
also be examined through machines. Failure of
the banks to impound counterfeit notes detected
at their end will be construed as wilful involvement
of the bank concerned in circulating counterfeit
notes and penalty will be levied.
1Penalty shall be levied in terms of the instructions
issued by DCM (FNVD) No.G-4/16.01.05/2025-26
dated April 1, 2025
iii. Mutilated notes (including ₹50/- per piece irrespective of the denomination in
deliberately cut notes and built-up addition to the loss.
notes) detected in soiled note
remittances and currency chest The recovery of loss and levy of penalty shall be
balances done immediately on detection, irrespective of
number of pieces.
iv. Non-compliance with operational Penalty of ₹5,000/- for each instance of
guidelines by currency chests irregularity.
detected by RBI officials e.g.
Penalty shall be enhanced to ₹10,000/- in case of
a) Non-functioning of CCTV, non- repetition / recurrence of irregularity in
compliance with rules / guidelines consecutive inspection cycles or earlier.
pertaining to CCTV recording
preservation period, and related Penalty shall be levied immediately.
issues
b) Branch cash / documents kept in
strong room (CC’s vault)
c) Non-utilisation of Note Sorting
Machines (NSMs) for sorting of notes
(NSMs not used for sorting of high
denomination notes, i.e. notes of
denomination ₹100 and above,
received over the counter or not used
for sorting notes remitted to chest /
RBI), Non-updation of NSMs as per
prescribed standards, non-functional
NSMs etc.
d) Non-conduct of surprise
verification of currency chest
balances - at (i) bimonthly intervals
by officials unconnected with the
operations of currency chest, and (ii)
six-monthly intervals by officials from
the Controlling Office
v. Violation of any of the terms of ₹10,000/- for any violation of agreement or
agreement with RBI (for opening and deficiency of service.
maintaining currency chests) or
deficiency in service in providing ₹5 lakh in case there are more than 5 instances of
exchange facilities, as detected by violation of agreement / deficiency in service by
RBI officials e.g. the currency chest / branch in consecutive
2a) Non-issue of coins over the inspection cycles or earlier. The levy of such
counter to any member of public penalty shall be placed in public domain.
despite having stock.
Penalty shall be levied immediately.
b) Refusal by any bank branch1 to
exchange soiled/ mutilated/
imperfect notes tendered by any
member of public.
c) Denial of facilities / services to
linked branches / of other banks.
d) Non acceptance of lower
denomination notes (i.e.
denomination of ₹50 and below)
tendered by members of public and
linked bank branches for exchange /
deposit.
e) Detection by RBI of mutilated, built
up, counterfeit notes in re-issuable
packets prepared by the currency
chest branches.
vi Non-replenishment of ATMs The Scheme of Penalty for non-replenishment of
ATMs has been formulated to ensure that
sufficient cash is available to public through ATMs.
Penalty shall be levied in terms of provisions of
circular DCM(RMMT) No.S153/11.01.01/2021-22
dated August 10, 2021 and instructions issued
subsequently.
3. Operational Guidelines on levy of penalties
3.1 Competent Authority
The Competent Authority to decide upon the nature of irregularity shall be the Officer-in-
Charge of the Issue Department of the Regional Office under whose jurisdiction the
defaulting currency chest / bank branch is located.
1 Small Finance Banks (up to two years from the commencement of their banking business) and Payment
Banks may exchange mutilated and defective notes at their option.
33.2 Appellate Authority
i. Appeal against the decision of the Competent Authority may be made by the Controlling
Office of the currency chest / branch to the Regional Director / Chief General Manager /
Officer-in-Charge of the Regional Office concerned, within one month from the date of
debit, who shall decide whether the same can be accepted (in full or part) / rejected. Penalty
waiver request would be considered only if the application for the same is made in the CyM-
CC portal. Waiver requests in any other mode shall not be entertained. Appeals shall not be
made in routine manner.
ii. Appeals for waiver of penalty made on grounds such as staff being new / untrained, lack
of awareness, corrective action having been taken / shall be taken, etc., shall not be
considered.
4Annex-II
FREQUENTLY ASKED QUESTIONS
Master Direction – Scheme of Penalties for bank branches and currency chests for
deficiency in rendering customer service to the members of public
1. What is Clean Note Policy?
It is a policy adopted by RBI to ensure availability of good quality banknotes to members
of the public.
2. What is Memorandum of Agreement (MoA)?
Before considering the first specific application for opening of a currency chest, a general
MoA is entered between the Reserve Bank of India and the bank concerned, setting out
the terms and conditions governing the entrustment of currency chest responsibilities to
the bank.
3. What are linked branches?
These are the bank branches linked with nearby currency chests under Linkage Scheme,
formulated by RBI mainly with a view to provide chest facilities to all non-chest bank
branches at the same centre as far as possible.
4. What are ‘soiled’, ‘mutilated’ and ‘imperfect notes’?
A ‘soiled note’ means a note which has become dirty due to normal wear and tear and
also includes a two piece note pasted together wherein both the pieces presented belong
to the same note and form the entire note with no essential feature missing. A ‘mutilated
note’ means a note of which a portion is missing or which is composed of more than two
pieces. An ‘imperfect note’ means any note, which is wholly or partially, obliterated,
shrunk, washed, altered or indecipherable but does not include a mutilated note.
5Annex-III
Illustration
Master Direction – Scheme of Penalties for bank branches and currency chests for
deficiency in rendering customer service to the members of public
1. Penalty for shortages of notes in soiled note remittances (SNRs) and shortages
of notes and coins in currency chest balances:
Example:
Shortage Denomination Penalty amount and loss recovered (₹)
detected (in
(Up to ₹50 - ₹50/- per piece in addition to the
pieces)
loss)
(₹100 & above - Equal to the value of the
denomination per piece in addition to the loss)
100 20 Penalty amount ₹5,000/- (50*100) and
loss ₹2,000/- (20*100)
50 100 Penalty amount ₹5,000/- (100*50) and
loss ₹5,000/- + (100*50)
2. Penalty for Mutilated notes (including deliberately cut notes and built-up notes)
detected in soiled note remittances and currency chest balances
Example:
Mutilated notes Denomination Penalty amount and loss recovered (₹)
detected (in
pieces) All denominations- ₹50/- per piece in
addition to the loss
200 200 Penalty amount ₹10,000/- (50*200) and loss
₹40,000/-(200*200)
63. Non-compliance with operational guidelines by currency chests detected by RBI
officials
In case of non-functioning of CCTV, non-compliance with rules / guidelines pertaining to
CCTV recording, preservation period, and related issues, penalty of ₹5,000/- for each
instance of irregularity shall be levied. Penalty shall be enhanced to ₹10,000/- in case of
repetition / recurrence of irregularity in consecutive inspection cycles or earlier.
Example: If CCTV in the currency chest is found to be non-functional during inspection/
audit, a penalty of ₹5,000/- will be levied. If the same issue recurs during the next
inspection cycle or earlier, ₹10,000/- will be levied.
7