India to amend RBI act to declare old Rs 500 and Rs 1,000 notes invalid
Higher dividend from the Reserve Bank due to the ban of Rs. 500/1000 may not be applicable until the RBI law is amended
The government of India is reportedly planning to amend the Reserve Bank of India (RBI) Act to extinguish the validity of high denomination currencies Rs 500 and Rs 1,000 printed before November 9.
I line with the decision to ban the notes, a law would be made to make Rs 500 and Rs 1000 notes invalid and a reference to this effect would be made in the upcoming Budget, PTI reported.
The law can be made effective from March 31, the news agency reported citing sources.
“In 1978, when the currency was banned, the law to annul the validity came ahead. This time the government acted under 26 (2),” said sources.
A section in the RBI act allows the central government to declare that any series of bank notes of any denomination shall cease to be legal tender, on the recommendation of the Central Board of RBI.
The report said higher dividend from the RBI due to cancellation of Rs. 500/1000 may not be applicable until the RBI law is amended.
Recently, RBI Governor Urjit Patel on Wednesday said, it will not have any automatic impact on RBI’s balance sheet.
“Actually, the withdrawal of legal tender characteristics status does not extinguish any of RBI’s balance sheet. Therefore, there is no implication on the balance sheet as of now. The question of a special dividend automatically does not arise as of now. Not just by the withdrawal of legal tender character.” Patel said.
Patel reiterated that the note ban has not been implemented in haste. “The decision was taken after detailed deliberations,” he added.
Experts have expressed fears that up to 20 per cent of the banned notes are not going to get back into economy, which would cause a balance sheet write-back of around Rs 3 trillion by the RBI.
“The consequences that have emanated from the note ban were taken on board. That is why the planning, the process and implementation is what it was, keeping in mind high secrecy had to be maintained. The RBI and the government were conscious of certain immediate difficulties for the public at large and all efforts were made to mitigate them,” Patel further said.