Exchange of old notes stopped from 25 November, says government

Deposit of scrapped Rs 500, Rs 1000 notes in bank accounts to continue; only old Rs500 notes allowed for payment of utilities, school fees, mobile phone recharges


A file photo of demonetised Rs500 banknotes. Photo: Pradeep Gaur/Mint
A file photo of demonetised Rs500 banknotes. Photo: Pradeep Gaur/Mint

New Delhi: The government stopped over-the-counter exchange of demonetized Rs500 and Rs1,000 currency notes starting on Friday, but extended the use of only old Rs500 notes for payment of utility bills, school fees and mobile-phone recharges up to a limit until 15 December.

Finance minister Arun Jaitley on Thursday also asked banks to accelerate a push towards cashless transactions in rural and semi-urban areas and resume normal lending as normalcy returns after the 8 November decision to scrap high-value notes.

The government allowed people to exchange up to Rs4,500 in old Rs1,000 and Rs500 notes at banks and post offices after the decision, and subsequently reduced the amount to Rs2,000. The Reserve Bank of India has pushed new Rs2,000 and Rs500 notes into the system, but demand has outpaced supply as people queued up both to exchange currency and withdraw money.

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“It has been observed that over the counter exchange of the old currency notes of Rs500 and Rs1,000 denomination has shown a declining trend,” the finance ministry said in a statement on Thursday. “It has further been felt that people may be encouraged and facilitated to deposit their old Rs500 and Rs1,000 notes in their bank accounts. This will encourage people who are still unbanked, to open new bank accounts. Consequently, there will be no over the counter exchange of old Rs500 and Rs1,000 notes after midnight of 24.11.2016.”

The government allowed transactions in a revised list of exempted categories using only Rs500 notes, completely withdrawing Rs1,000 notes from use. Such exemptions include payment of school fees up to Rs2,000 per student, payment of fees in central or state government colleges, payments towards pre-paid mobile top-up to a limit of Rs500 per top-up, purchase from consumer cooperative stores up to Rs5,000 at a time, and payment of current dues and arrears to water and electricity utilities.

Separately, the ministry of road transport and highways extended the toll-free arrangement at the toll plazas up to 2 December. After that date, payments at these toll plazas can be made through old Rs500 notes till 15 December.

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Petroleum and natural gas minister Dharmendra Pradhan tweeted that after midnight, petrol pumps and LPG shops will also continue to accept only old Rs500 notes till 15 December.

Foreign citizens have now been permitted to exchange foreign currency up to Rs5,000 per week.

In a video conference with heads of public and private sector banks on Thursday, Jaitley said one of the major objectives of withdrawing Rs500 and Rs1,000 notes was to move the Indian economy towards digital transactions.

“Physical currency must shrink while the economy should expand, shifting more and more focus to digital currency,” he said.

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In a series of decisions, banks were asked to focus on significantly stepping up transactions through alternative banking channels such as NEFT (National Electronic Funds Transfer), mobile wallets, pre-paid cards, QR codes, pay-roll cards, debit and credit cards and the Unified Payment Interface.

Banks will increase their focus on semi-urban and rural areas. This outreach would be backed by an advertising campaign by the Indian Banks’ Association (IBA) including demonstration videos on how to use cards and other modes of cashless transactions.

As crowds thin at their branches, banks will restart normal lending and in particular Mudra (Micro Units Development and Refinance Agency Ltd) loans. “These would help meet restocking requirements of enterprises by way of working capital delivered through Mudra cards,” the finance ministry statement said.

The government on Wednesday announced several measures including waiving of service charges on online purchases. To promote payments through e-wallets, RBI decided to increase monthly transaction limit for individuals from Rs10,000 to Rs20,000.

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