RS 500 and RS 1000 notes banned: Reasons and its Effects.

November 10, 2016 - News
RS 500 and RS 1000 notes banned: Reasons and its Effects.

Prime Minister Narendra Modi announced the demonetisation of RS 500 and RS1000 notes:-

This historic move has come as a surprise to the every citizen of the nation. But most of us are not aware about the fact why this decision has been made and what will be its effects ?


Why this Decision ?

PM Narendra Modi in his speech specifically pointed out that these large valued notes are being used to finance corruption , funding terrorism and in racketeering, drugs and other illegal activities.

During Elections, RS 500 and RS 1000 notes constitute a huge percentage in money spent by political parties and government. Media reports studied over 30,000 crore was spent in 2014 election while official spending account for Rs 7,000 – 8,000 crore.

The most important fact, is that fake currency notes been increasing in higher denomination over the years. It hints the increasing size of black economy money.

India remains a cash based economy hence the circulation of fake Indian currency  notes continues to be a menace.

Banning of Rs 500 and Rs 1000 notes will tackle the rising incidence of black money and fake notes. That’s why this decision has been made. However, modi decision to decommission Rs 500 and Rs1000 notes should ideally not hurt most individuals in long term but it will have a significant negative effect on working class and small and rural businesses in short term.

How this is going to impact us ?

There will be a significant shortage in cash supply over next month. not just for higher denomination but also for other denomination as well.

ATMs will be closed on 9 Nov and 10 Nov(in some places). This is being done in order to remove 500 and 1000 RS notes and replace them with lower denomination notes. According to multiple government officials , this process will take one to two weeks in urban areas and up to a month in rural and remote regions. Long queues at Atm’s have already started.People are withdrawing small 100 Rs notes to stock up in order to overcome the shortage.

It is unclear at the moment how quickly the access to Rs 2000 notes will be issued.

The ripple effects of this cannot be understated. There are major industries in India thrive on a parallel economy funded by black money. How will this affect the more legitimate and normal economy? The weeks and months ahead will tell.

Bank Deposits will increase by a huge margin as people who are having a lot of cash legally earned will deposit it in the bank. As a result of this will increase the lending activity because banks will have more deposits so they can do more lending.

Loans will become easier and interest rate will come down. More loan given out increase more supply results in inflation. But this is going to happen slowly.

People who have Illegally earned money or those who are having crore of cash and black money will try to deposit their money in bank but they have to declare it as income and have to pay tax on it. but the most of these guys will be in problem because the question arises how did they make this money. Most of them will waste the money they have stashed in somewhere in 500 and 1000 Rs notes.

All this will reduce the total currency circulation in the economy for the next 6 months to 1 year. Gold prices will drop, stock and commodities prices will also drop.

Now no one can predict the extent of the deflation and inflation. In an ideal world, if 100% of the people who have Rs.500 and Rs.1000 notes have it as white money, then we would see only inflation. If a lot of these are black money and if many people decide to waste the money instead of depositing it, then we will have deflation in the short term.



1. What is this scheme?

The legal tender character of the existing bank notes in denominations of ₹500 and ₹1000 issued by the Reserve bank of India till November 8, 2016 (hereinafter referred to as Specified Bank Notes) stands withdrawn. In consequence thereof these Bank Notes cannot be used for transacting business and/or store of value for future usage. These Bank Notes can be exchanged for value at any of the 19 offices of the Reserve Bank of India or at any of the bank branches or at any Head Post Office or Sub-Post Office.

2. How much value will I get?

You will get value for the entire volume of notes tendered at the bank branches / RBI offices.

3. Can I get all in cash?

No. You will get upto ₹4000 per person in cash irrespective of the size of tender and anything over and above that will be receivable by way of credit to bank account.

4. Why I cannot get the entire amount in cash when I have surrendered everything in cash?

The Scheme does not provide for it, given its objectives.

5. ₹4000 cash is insufficient for my need. What to do?

You can use balances in bank accounts to pay for other requirements by cheque or through electronic means of payments such as Internet banking, mobile wallets, IMPS, credit/debit cards etc.

6. What if I don’t have any bank account?

You can always open a bank account by approaching a bank branch with necessary documents required for fulfilling the KYC requirements.

7. What if, if I have only JDY account?

A JDY account holder can avail the exchange facility subject to the caps and other laid down limits in accord with norms and procedures.

8. Where can I go to exchange the notes?

The exchange facility is available at all Issue Offices of RBI and branches of commercial banks/RRBS/UCBs/State Co-op banks or at any Head Post Office or Sub-Post Office.

9. Need I go to my bank branch only?

For exchange upto 4000 in cash you may go to any bank branch with valid identity proof.

For exchange over 4000, which will be accorded through credit to Bank account only, you may go to the branch where you have an account or to any other branch of the same bank.

In case you want to go to a branch of any other bank where you are not maintaining an account, you will have to furnish valid identity proof and bank account details required for electronic fund transfer to your account.

10. Can I go to any branch of my bank?

Yes you can go to any branch of your bank.

11. Can I go to any branch of any other bank?

Yes, you can go to any branch of any other bank. In that case you have to furnish valid identity proof for exchange in cash; both valid identity proof and bank account details will be required for electronic fund transfer in case the amount to be exchanged exceeds ₹4000.

12. I have no account but my relative / friend has an account, can I get my notes exchanged into that account?

Yes, you can do that if the account holder relative/friend etc. gives you permission in writing. While exchanging, you should provide to the bank, evidence of permission given by the account holder and your valid identity proof.

13. Should I go to bank personally or can I send the notes through my representative?

Personal visit to the branch is preferable. In case it is not possible for you to visit the branch you may send your representative with an express mandate i.e. a written authorisation. The representative should produce authority letter and his / her valid identity proof while tendering the notes.

14. Can I withdraw from ATM?

It may take a while for the banks to recalibrate their ATMs. Once the ATMs are functional, you can withdraw from ATMs upto a maximum of ₹2,000/- per card per day upto 18th November, 2016. The limit will be raised to ₹4000/- per day per card from 19th November 2016 onwards.

15. Can I withdraw cash against cheque?

Yes, you can withdraw cash against withdrawal slip or cheque subject to ceiling of ₹10,000/- in a day within an overall limit of ₹20,000/- in a week (including withdrawals from ATMs) upto 24th November 2016, after which these limits shall be reviewed.

16. Can I deposit Specified Bank Notes through ATMs, Cash Deposit Machine or cash Recycler?

Yes, Specified Bank Notes can be deposited in Cash Deposits machines / Cash Recyclers.

17. Can I make use of electronic (NEFT/RTGS /IMPS/ Internet Banking / Mobile banking etc.) mode?

You can use NEFT/RTGS/IMPS/Internet Banking/Mobile Banking or any other electronic/ non-cash mode of payment.

18. How much time do I have to exchange the notes?

The scheme closes on 30th December 2016. The Specified banknotes can be exchanged at branches of commercial banks, Regional Rural Banks, Urban Cooperative banks, State Cooperative Banks and RBI till 30th December 2016.

For those who are unable to exchange their Specified Bank Notes on or before December 30, 2016, an opportunity will be given to them to do so at specified offices of the RBI, along with necessary documentation as may be specified by the Reserve Bank of India.

19. I am right now not in India, what should I do?

If you have Specified banknotes in India, you may authorise in writing enabling another person in India to deposit the notes into your bank account. The person so authorised has to come to the bank branch with the Specified banknotes, the authority letter given by you and a valid identity proof (Valid Identity proof is any of the following: Aadhaar Card, Driving License, Voter ID Card, Pass Port, NREGA Card, PAN Card, Identity Card Issued by Government Department, Public Sector Unit to its Staff)

20. I am an NRI and hold NRO account, can the exchange value be deposited in my account?

Yes, you can deposit the Specified banknotes to your NRO account.

21. I am a foreign tourist, I have these notes. What should I do?

You can purchase foreign exchange equivalent to ₹5000 using these Specified Bank Notes at airport exchange counters within 72 hours after the notification, provided you present proof of purchasing the Specified Bank Notes.

22. I have emergency needs of cash (hospitalisation, travel, life saving medicines) then what I should do?

You can use the Specified Bank Notes for paying for your hospitalisation charges at government hospitals, for purchasing bus tickets at government bus stands for travel by state government or state PSU buses, train tickets at railway stations, and air tickets at airports, within 72 hours after the notification.

23. What is proof of identity?

Valid Identity proof is any of the following: Aadhaar Card, Driving License, Voter ID Card, Pass Port, NREGA Card, PAN Card, Identity Card Issued by Government Department, Public Sector Unit to its Staff.

24. Where can I get more information on this scheme?

Further information is available on our website ( and the website of the Government of India (

25. If I have a problem, whom should I approach?

You may approach the control room of RBI by email or on Telephone Nos 022 22602201/022 22602944

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