Business

A clean note policy - beyond staples

THE RESERVE Bank of India has undertaken a mammoth task of formulating a `clean note' policy that seeks to ensure "adequate, good quality clean notes are available throughout the country". However, the modernisation of the currency distribution process of the central bank is facing stiff opposition from bank unions.

No other product touches the life of a citizen as much as currency notes. Thus it is the responsibility of the Reserve Bank to make available enough good currency in the country. One of the stumbling blocks to the RBI's efforts in this task is the stapling of currency notes by banks and their branches. The Reserve Bank started the de-stapling process in 1996 in order to minimise damage to currency notes. But many banks continue the stapling practice despite several warnings. It is assumed that the larger the number of staple pins, the greater the security for currency notes. That seems to be the primary concern of the unions as well. Stapling apparently means greater safety while discharging their work.

In 1996, the Reserve Bank decided to get tough with banks which do not follow its directives and issue stapled notes or re-issue soiled or mutilated notes. Recently, it made it mandatory for banks to discontinue the practice of stapling currency note packets. It has issued a directive to banks under Section 35A of the Banking Regulation Act, 1949 with the objective of giving clean and good notes to the members of the public. If a bank does not implement a directive issued under this section of the Banking Regulation Act, then the Reserve Bank can penalise the bank and the penalties can range from cash fine to withdrawal of banking licence. However, the Reserve Bank is trying to be persuasive with banks in this issue.

RBI directive

The directive stated: "The Reserve Bank of India has been supplying fresh notes without staples to the banks and the members of the public. It however observed that banks stapled these fresh notes before issuing them to the public. Further, the banks had been following the practice of applying multiple staples with strong thick steel wires on the re-issuable note packets. People were experiencing great difficulty in removing these multiple staples. Apart from causing injuries to people, these staples also caused damage to the notes. Banks refused to accept such damaged notes from the people. Stapling was, thus, found to be a major cause for damaging good notes".

In another detailed directive to banks the RBI noted:

(1) Banks should do away with stapling of any note packet and instead secure note packets with paper bands.

(2) Banks should sort notes into re-issuable and non-issuable, and issue only clean notes to the public. Soiled notes in unstapled condition may be tendered at the Reserve Bank in inward remittances through currency chests.

(3) Banks should forthwith stop writing of any kind on the watermark window of bank notes.

Resistance from unions

However, bank unions are not happy with the RBI move, especially those representing the public sector banks. Repeated attempts by the RBI to encourage banks to follow a good clean note policy are being blocked by the Unions. When it is the right of every citizen (customers) to get clean notes from the banks, the unions have decided to defy the order on non-stapling of notes and asked the central bank to restore the system of stapling. The RBI itself has 19 centres for currency operations while the distribution of notes and coins throughout the country is done through designated bank branches having currency chests. There are around 4000 such currency chests spread over the country.

The RBI and the Government have been receiving numerous complaints against stapling. A study conducted by the Bank had indicated that no other country followed the practice of stapling note packets. Although de-stapling was initiated in 1996, the Bank started issuing instructions regularly to banks only from 1998 to discontinue the practice and the directive against stapling was issued in November 2002. The public has widely welcomed the step.

The other side to this issue is the disposal of soiled notes at the RBI. The unions apprehend shortages and hence fear taking the flak. Stapling seemed "a safer option".

The Reserve Bank offices process the notes received from bank branches and government departments in a fully automated processing machine in a strict security environment supplemented by closed circuit television.

In order to speed up the process of disposal of soiled notes received in the Issue Offices, the RBI has installed currency verification and processing systems for mechanised processing of these notes. These machines can process 50,000 to 60,000 notes per hour. They can sort soiled notes into fit and unfit and also detect counterfeit notes. The unfit notes are shredded on-line and the fit notes are banded into packets of 100 pieces for re-issue. The RBI has procured 42 such systems for installation in all its Issue Offices.

As an alternative to wire stapling, the RBI advised banks to secure the note packets with paper or polymer bands for which note banding machines are available. "Pending procurement of these machines, the note packets can also be secured with suitable rubber bands. If necessary, even two bands, one vertical and one horizontal with a security sticker at an appropriate place, can be used," the Bank suggested. The central bank has now clarified that this is not a negotiable issue. The Indian Banks Association also agrees that this is not a subject matter for negotiation.

The unions are an intrinsic part of the administration and while trying to protect the rights of its workforce, they should not forget their responsibility to the society.

Oommen A. Ninan

in Mumbai

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