How the RBI is minting a new nationwide currency logistics framework | Finance News
Mint Road’s refined currency management system has led to a marked fall in its holding pens. The number of currency chests (CCs) in the country stands at 2,838 in FY23 from 3,812 in FY19 while that of coin depots is at 2,293 (3,519).
This follows the Reserve Bank of India (RBI) revamping its systems in FY19 – as in getting bigger storage units. The amount of cash in CCs was placed at a minimum of Rs 1,000 crore and was to be housed in a 1,500 sq ft strong room in hilly and inaccessible places. The strong room was to be at least 600 sq ft.
The functions relating to issuing currency (banknotes and coins) and their management are performed by the RBI through its 19 issue offices, CCs and small coin depots in the country. In FY23, the State Bank of India accounted for the highest share (53.14 per cent) of CCs.
The value and volume of banknotes in circulation increased by 7.8 per cent and 4.4 per cent, respectively, in FY23 compared with 9.9 per cent and five per cent in FY22. In value terms, the share of Rs 500 and Rs 2,000 banknotes together accounted for 87.9 per cent of the total value of banknotes in circulation in FY23 compared to 87.1 per cent in the previous financial year. In volume terms, Rs 500 denomination constituted the highest share at 37.9 per cent, followed by Rs 10 banknotes which constituted 19.2 per cent of the total banknotes in circulation in FY23.
While the number of CCs (and coin depots) has fallen due to the revamp in their holding pens, cash in circulation (CiC) has inched up despite the huge increase in digital payments. Mint Road has offered an explanation for this.
While the Unified Payments Interface (UPI)-led retail digital payments grew at a compound annual growth rate of 50 per cent and 27 per cent in terms of volume and value, respectively (between FY17 and FY22), the CiC to GDP ratio also rose and peaked at 14.4 per cent in the same period. This phenomenon is, however, not new or unique to India and has been observed since 2007 in several nations. The persistent affinity for cash has been attributed to factors such as the decline in opportunity costs of holding currency, i.e., interest rates, precautionary holdings amid uncertainty, a large informal economy and direct benefit transfers by the government.
Cash is “in” – over the last few years, three firms in the cash management business have got listed on the bourses: CMS, AGS Transact and Radiant. According to Frost & Sullivan, there has been a significant increase in demand for cash due to the expansion of non-banking financial companies, e-commerce and other retail enterprises as well as their expansion into smaller cities. This has led to a far greater share of cash-on-delivery (CoD). In FY22, CoD made for more than 60 per cent of e-commerce payments, indicating the significance of cash with respect to payments. The share of CoD (for all payments) is higher at 70 per cent in the non-metros, and as high as 90 per cent in the Tier-IV cities — compared to 50 per cent in the metros.
What is awaited are the takeaways from Mint Road’s pilot project on QR code-based Coin Vending Machine (QCVM) in collaboration with five lenders: Axis Bank, Bank of Baroda, ICICI Bank, State Bank of India and Federal Bank. The QCVM is a cashless coin dispensation system which allows payment transactions through UPI on scanning a QR code generated
by the machine on the mobile phone of the customer. Unlike cash-based traditional coin vending machines, the QCVM eliminates the need for physical tendering of banknotes. In QCVMs, customers can withdraw coins in required quantities and denominations.
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RBI issues, manages currency through 19 offices, currency chests, small coin depots
The value and volume of banknotes in circulation increased by 7.8% and 4.4%, respectively, in FY23
In 2019, RBI increased the currency chest balance limit to at least Rs 1,000 cr
The currency chest had to be in a 1,500 sq ft strong room
Chests were to have processing capacity of 66,0000 notes daily
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