Currency chests: A lifeline to the Indian economy

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Currency chests A lifeline to the Indian economy
April 2018
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Table of contents

1 Currency management .......................................................................03

2 Currency chest ...................................................................................04

3 Infrastructure for currency management ............................................06

4 The functions of the DCM ...................................................................07

5 The process of the movement of currency............................................08

6 The currency chest mechanism...........................................................10

7 Infrastructure for distribution and circulation of currency...................12

8 Currency management in India: Major challenges...............................13

9 Recent measures in India ...................................................................15

10 Current scenario ................................................................................16

11 Roadmap ahead for currency management due to digitalisation.........18

12 Circulars on currency from the RBI.....................................................19

13 Bibliography.......................................................................................21

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Our team ...........................................................................................22

Currency chests: A lifeline to the Indian economy

Currency management

The Department of Currency Management (DCM) has the responsibility of administering the functions of currency management, a core function of the Reserve Bank of India (RBI) in terms of the Reserve Bank of India Act, 1934. Currency management essentially relates to the issue of notes and coins and retrieval of unfit notes from circulation.

Trends in currency
The value of banknotes in circulation declined by 20.2% over the year to 13,102 billion INR as at end-March 2017 (refer to the table below). The volume of banknotes, however, increased by 11.1%, mainly due to higher infusion of banknotes of lower denomination in circulation following demonetisation. In value terms, the share of 500 INR and above banknotes, which had together accounted for 86.4% of the total value of banknotes in circulation at end-March 2016, stood at 73.4% at end-March 2017. The share of newly introduced 2,000 INR banknotes in the total value of banknotes in circulation was 50.2% at end-March 2017. In volume terms, 10 INR and 100 INR banknotes constituted 62% of the total banknotes in circulation at end-March 2017 as compared with 53% at end-March 2016.

Banknotes in circulation

Denomination (INR)
2 and 5 10 20 50 100 500 1,000 2,000 Total

Volume (million pieces)

Mar ’15

Mar ’16

Mar ’17




























Source: RBI Annual Report 2016–17

Value (billion INR)

Mar ’15

Mar ’16

Mar ’17




























Coins in circulation

Denomination (INR)
Small coins 1 2 5 10 Total

Volume (million pieces)

Mar ’15

Mar ’16

Mar ’17



















Source: RBI Annual Report 2016–17

Value (billion INR)

Mar ’15

Mar ’16

Mar ’17



















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Currency chests: A lifeline to the Indian economy

Currency chest

For the purpose of cash management, the RBI established the institutional framework of currency chests with banks. A currency chest is a receptacle where the RBI keeps all the excess money of banks under custody. Currency chests are branches of selected commercial banks authorised by the RBI to stock and distribute rupee notes and coins. The responsibility for managing the currency in circulation is vested in the RBI. Whenever the RBI prints new currency notes, it first delivers them to currency chests. These chests then deliver the notes to banks. A currency chest is a depository of the RBI. The bank, however, must maintain a separate account independently of the chest which is monitored by the RBI. A deposit into the chest leads to a credit to the commercial bank’s account and a withdrawal translates into a debit. A currency chest is the subdivision of a bank established to store the surplus cash from the branch inward remittance without losing interest earnings and to avoid keeping the money idle in the branches. It also protects cash movement within the set of branches which a currency chest serves. This storage facility helps a bank to maintain its cash reserve ratio (CRR) with the RBI as per the guideline. A currency chest is usually maintained by designated/appointed branches in a particular city. All the branches of a particular bank or other banks in that region transact with the designated currency chest. These chests act as the distributor of cash and collects soiled and mutilated notes back from the public. The RBI is the owner of cash deposited in the vault of a currency chest. When the cash is added to the vault, it becomes RBI’s cash and when taken out from the vault, it becomes the bank’s cash.
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Currency management in India
The currency management infrastructure consists of a network of 19 issue offices, 4,034 currency chests (including sub-treasury offices and a currency chest of the Reserve Bank at Kochi), and 3,707 small coin depots of commercial, cooperative and regional rural banks (RRBs) spread across the country. In order to improve the currency distribution system by leveraging technology, the RBI adopted a hub-and-spoke model for the distribution of banknotes across the country. Fresh note remittances are sent to larger currency chests, which meet the currency needs of a designated area (such as a district). These chests are identified as hub chests and, in turn, supply notes to smaller currency chests in their vicinity which act like spokes in the distribution model. Fresh notes are distributed to every issue office of the RBI as per an allocation plan.
Cash processing operations in India have incorporated various new means of increasing efficiency in recent years. Managing currency is one of the important functions of the RBI, India’s banking regulator. Section 22 of the RBI Act allows it to issue notes. The objective of the RBI’s currency management operations is to ensure an adequate supply of good quality bank notes and coins. In India, the core central banking function of note issue and currency management is performed through 19 issue offices, the sub-office in Lucknow, a currency chest in Kochi and a wide network of currency chests and small coin depots. The RBI has agency arrangements mainly with scheduled commercial banks, under which a currency chest is managed. Banknotes and coins are then distributed through bank branches and automated teller machines (ATMs), in addition to currency vending machines. To help the supply of good quality notes, mechanisation was underway from the year 2007–08 at the currency chests of commercial banks, which resulted in the installation of the highcapacity Currency Verification and Processing System (CVPS), Currency Disintegration and Briquetting System (CDBS) and desktop sorting machines. Commercial banks hire installed note sorting machines (NSMs, desktop note sorters, note-counting machines, ATMs, cash recyclers and note detectors.
The preamble of the RBI makes it responsible for making currency available to the general public. Until the time the currency comes out of the RBI, it is not legal tender and is referred to as note form. Currency notes are issued by the Issue Department of the RBI. The Issue Department and the Banking Department manage currency. The Issue Department supplies currencies to the Banking. Department for day-to-day transactions. The Banking Department also stores a limited amount of currency, which is referred to as box value. Box value can vary from office to office. If the balance of the Banking Department exceeds the box value, then it has to transfer the excess value to the Issue Department.
The volume of currency issued to the general public is significant. The RBI issues cash through the accounts that banks maintain with it. When currency chests were not in existence, banks used to draw currency daily from the RBI. The objective of a currency
Currency chests: A lifeline to the Indian economy

Currency chest

chest was to make the operation and management of currency simple and easy. The RBI was careful in allotting the management of currency chest operations to banks on its behalf. Since their inception, currency chests have been managed by public sector banks. Private sector banks entered the space later.
In 1994, HDFC Bank, a private sector bank in India, applied for a currency chest and obtained permission from the RBI in six months. Today, currency chests are managed by foreign banks as well. These currency chests are audited by the RBI on a regular basis. The chest is managed by the officials in the currency chest of the main bank branch or a particular designated branch.
This designated branch is authorised to supply and receive currency. By setting up a currency chest, banks do not require to approach the RBI on a daily basis for deposits or withdrawals. Upon the close of the day, if the bank receives more money than payments, the bank deposits this excess to the currency chest and gets a credit. If payment exceeds receipts, the bank withdraws from the currency chest and informs the RBI.

Currency chests and small coin depots as at end-March 2017:

State Bank of India (SBI) SBI associate banks Nationalised banks Private sector banks Co-operative banks Foreign banks Regional rural banks State treasury offices (STOs) RBI Total
Source: RBI Annual Report 2016–17

No. of currency chests 1,893 754 1,198 168 4 4 5 7 1 4,034

No. of small coin depots 1,793 722 1,014 164 4 4 5 0 1 3,707

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Currency chests: A lifeline to the Indian economy

Infrastructure for currency management
According to section 23 of the RBI Act, the issuance of currency and general business affairs of the RBI are carried on through two different specialised departments, the Issue Department and Banking Department. The Issue Department is responsible for the total value of the currency notes in circulation and to safely maintain total assets of desired value. This department is liable for the issuance of banknotes in exchange of other denominations and against assets, and instrumental in the process of getting currency notes or coins from printing presses or mints and distributing currency among the public across the country. It is also responsible for withdrawing unfit and improper currency from circulation. The execution of the above-mentioned activities—that is, placing the required currency into circulation and the withdrawal of currency from circulation—is handled by the Banking Department of the RBI.
The objectives of currency management are very specific:
To ensure smooth cash flow by making available sufficient and desirable quality of currency to meet the country’s demand.
To print notes and mint coins from government-owned and self-run note printing presses and mints.
To distribute and circulate sufficient notes and coins throughout the country by arranging proper and secure infrastructure.
To maintain notes which are of the desired quality and fit and appropriate for circulation.
To withdraw unfit and inappropriate notes from circulation and to destroy them and replace them with new currencies without hampering the demand and supply balance of the desired quantity of currency.
To maintain secure and effective processes for accounting.
To manage foreign exchange efficiently.
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Currency chests: A lifeline to the Indian economy

The functions of the DCM
The RBI fulfils the above-mentioned objectives and duties through its well-organised and efficient department called the DCM. The DCM is headed by a Chief General Manager. The department has a planning division, resource management and remittance of treasure division, note processing and data analysis division, inspection follow-up division, currency chest division, note exchange division, forged note vigilance cell, security cell, co-ordination and development division, and administration division. The DCM of the RBI makes monetary policies, addresses operational issues, and takes actions in managing the planning, process of issuance and distribution of currency within the country:
To design currency notes. It recommends designs of banknotes to the Central Government and prints them accordingly.
To forecast the demand for currency notes and coins of the country.
To circulate and distribute currency smoothly throughout the nation.
To withdraw the dirty, unfit and improper paper notes and uncurrent coins from circulated currency. To ensure the integrity of banknotes. To identify, evaluate and manage the security risks of the issuance, circulation and distribution of currency. To administer the provisions of the RBI (Notes Refund) Rules, 2009, which deals with the payment of the value of soiled or multilated notes. To rationalise the work procedures of the issue offices on a regular basis. To co-ordinate and ensure the protection and safety of the currency management system and assets as a whole.
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Currency chests: A lifeline to the Indian economy

The process of the movement of currency

The RBI gets new currency notes from four currency note printing presses and gets coins from mints. Among the four currency note printing presses, two are owned by the Security Printing and Minting Corporation of India Limited (SPMCIL), which is wholly owned by the Indian Government, and situated in Nashik, Maharashtra, and Dewas, Madhya Pradesh. The other two are run by the RBI and owned by its subsidiary named the Bharatiya Reserve Bank Note Mudran Ltd. (BRBNML); they are situated in Mysore in Karnataka and Salboni in West Bengal. There are four mints in India where coins are minted. All mints are owned by the Government of India and they are situated in Mumbai, Hyderabad, Kolkata and Noida. Currency notes move from printing presses to currency chests or from chests to bank branches or vice versa, in specially built secured trucks, accompanied by RBI officials and security. Banks officials are responsible for the movement of currency from currency chests to bank branches. A currency chest distributes currencies to a particular bank branch to fulfil a specific demand based on the business volume created by that particular bank branch in its local business area of operation.
Currency flow

Currency for soiled notes

Note destruction: RBI

Return to RBI: RBI and agents

Return to currency chest: Banks and CIT

Deposits: Customers and representatives

Own branches


Currency chest

Other branches

Currency flow for note reissuance

Printing press

RBI office

Currency chest

Bank branches


Currency flow for new notes

Note issuance

To currency chest: RBI and agent

To points of access: Bank and cash in transit (CIT)

End users: General public

Issue Department (RBI)

Currency chest (banks)

Own branches and on-site ATMs (banks)
Other bank branches (banks)
Offsite ATM (banks and non-banks)

• Rarely outsourced
• Often CIT

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Own branches

Foreign branches

• Partially outsourced

Non-bank ATMs

CCuurrrernencycy chchesetst

Own ATMs

• CIT when off-site

Foreign ATMs

• CIT when off-site

Currency chests: A lifeline to the Indian economy

The process of the movement of currency

Currency chest may exchange currency

• Approves cross-shipments

• Notifies RBI • Receives currency

Deficit currency chest

Surplus currency chest

• Notifies RBI • Sends currency

Many phases of currency operations have been partially or fully outsourced in India. Banks’ progress toward full outsourcing is detailed in the table below. Processing refers to the sorting, banding, bundling and shrink wrapping of currency.

Outsourcing of currency operation

Private sector banks Banks from SBI/nationalised banks Other nationalised banks

Processing Partly outsourced Own Own

Source: Cash and currency operation in India

Machine operation Cash in transit

Partly outsourced Fully outsourced



Partly outsourced Partly outsourced

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Currency chests: A lifeline to the Indian economy

The currency chest mechanism

Currency is managed by the RBI through its interconnected structure of issue offices and currency chests. Once a currency chest starts operating, an inceptive remittance of banknotes and rupee coins is arranged from the issue office under whose control it functions or by diversion from a chest in the circle/outside the circle. From time to time, the RBI issues directorial instructions to currency chests regarding banknotes and coins, new series of banknotes/coins, changes in procedure, etc.
It is the responsibility of each issue office of the RBI to furnish and pull out banknotes and coins to and from the chests in its area. The yearly demand of notes and coins of currency chests is evaluated through indents submitted by the chests through their link offices. The branches of currency chests are required to practically evaluate their requirements and forward their indents for banknotes and coins on an annual basis (April to March) to their respective link offices, who in turn submit a consolidated chest-wise, denomination-wise indent for notes and coins to the concerned issue offices. The currency chests are also required to specify in their indents the excess and soiled banknote balances and the excess and withdrawn coins which are required to be removed.
The banknotes and rupee coins which are out of condition, cannot be issued for further circulation or are not required for instantaneous requirements of the branches are unloaded into the chests. When adequate quantities of non-issuable banknotes are collected, they are remitted to the concerned issue office. A currency chest enable banks/treasuries to work with minimum cash balance of their own by avoiding the periodic physical movement of currency.
At certain times, a currency chest’s demand is met by arranging supplies from other chests with an excess by a diversion order from issue offices. The chests with excess funds from which supplies can be drawn and the deficient supply chests to which these can be sent are discovered on the basis of the database of chests maintained at the RBI’s issue offices.
The excess cash at the non-chest branches can be deposited with bank branches maintaining currency chests at the same or another centre. Alternatively, they can meet their cash requirements from these chests. This also helps in collecting soiled banknotes accumulated with non-chest bank branches with the chest branches for onward transmission to the issue office in due course. Once the non-chest branches receive the banknotes, non-chest bank branches have a mandate to sort the banknotes into re-issuable and soiled/non-issuable before depositing the same with the chest branch to which they remit their cash.

Core activities of a currency chest
Movement of cash (inward and outward)

Processing of inward cash

Vaulting (taking cash out in the morning and keeping processed cash in the night)
Sub-activities of a currency chest
1. Cash-in-transit logistics: A currency chest is allocated a specific geographical area for its service depending upon its cash holding limit and the normal cash flow trends. The route is to be managed in such a way that the transportation cost must be minimum for the cash need of its branches. Tracking of vehicles is another area to which a currency chest devotes its time.
2. Liaison with branches for co-operation and regulation of all the branches under the currency chest’s command area to maintain the required balance in the branch vault at the day end.
3. Processing is a separate wing which is like a production factory. There are huge machines inside the currency chest processing centre. This machine can filter out good notes. All production management theories are applicable to this factory, such as maintaining sufficient raw material (inward cash), tracking the inflow of cash, machine calibration, efficiency of machines and labour, tracking the proportion of quality notes from processing, fake note registry, scientific management of process and procedures, safety issues, security issues, fraud responsiveness and resilience efforts and labour issues.

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Currency chests: A lifeline to the Indian economy

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Currency chests: A lifeline to the Indian economy