RBI Appears to Have Given up on Obtaining Demonetised Notes From Nepal

The disappearance of Nepal from the RBI’s note-counting narrative is particularly glaring since the delay in verifying the returned currency had been blamed on complications related to the Himalayan nation.

New Delhi: Last year, the Reserve Bank of India had said the delay in getting demonetised Indian rupee notes from Nepal was one of the two reasons for not finishing the counting of the scrapped currency.

A year later, however, Nepal has disappeared from the key categories listed by the central bank that could account for some of the missing amount of demonetised notes that have not entered Indian banking channels in the last two years.

On Wednesday, the RBI announced that it had finally finished counting the currency that was returned after the Indian government withdrew Rs 500 and Rs 1000 notes on November 8, 2016.

According to the RBI’s annual report for 2017-18, 99.3% of the scrapped notes, technically known as ‘specified bank notes’ (SBNs), have been returned to the formal banking system. It means that just a little over Rs 10,000 crore out of the Rs 15.41 lakh crore still remain in circulation or at least, unaccounted for.

The RBI has not given a break down of this missing amount of Rs 10,720 crore. However, it has listed two categories of demonetised notes that are still to come back into the system.

The first category is the currency “seized by law enforcement agencies or produced before a court on or before December 30, 2016,” while the other is related to deposits from certain district central cooperative banks (DCCBs) mired in a legal case.

There is, however, a striking absence.

In the 2016-17 annual report, the preliminary figure of Rs 15.28 lakh crore of the SBNs was subjected to two variables of adjustment: one, the familiar refrain of the yet-to-be-accounted money deposited through DCCBs – which is also mentioned this year.

The second avenue, as per the RBI’s annual report published last year, was Nepal.

“Further, in terms of AP (DIR series) circular no. 45/2015-16 dated February 04, 2016, rules governing import and export of Indian currency notes to, inter alia, Nepal are different vis-à-vis other countries,” said the RBI’s 2016-17 report.

It added that the RBI was “in discussion with Government of India with regard to the acceptance or otherwise of SBNs held by citizens/Financial Institutions in Nepal.”

Though not legal tender, Indian currency is widely used in Nepal. At the time of demonetisation, travellers could legally take with them up to Rs 25,000 in Rs 500 and Rs 1000 currency notes.

Even as it presented a missing figure of Rs 13,000 crore, RBI’s 2016-17 annual report cautioned:

“Therefore, the value of notes in circulation is subject to adjustments to be made after the completion of the verification process of the SBNs received as also for the notes to be received from DCCBs and Nepalese citizens/Financial Institutions.”

A year later, there is no mention of Nepal in the section about the fate of the demonetised currency in the RBI’s annual report released Wednesday.

Two days after India announced the withdrawal of the high-value currency notes in November 2016, the Himalayan nation said that the Nepal Rastra Bank and other financial institutions held around Rs 3.6 crore.

However, there is no certain information about the amount held by ordinary Nepalis, with the estimates varying from Rs 300 crore to Rs 10,000 crore.

The disappearance of Nepal from the RBI’s note-counting narrative is particularly noticeable since the blame of the delay in verifying the returned currency by the Indian central bank was put on complications related to the Himalayan nation.

“One of the reasons why the RBI has not come out with counterfeit money estimates is because the entire issue of currency circulating in Nepal is still being investigated,” NITI Aayog vice chairman Rajeev Kumar had said in November 2017.

When asked whether the issue of exchange of demonetised Indian currency notes is still part of the bilateral agenda, Nepali diplomatic sources claimed that the matter had not been shelved. However, they acknowledged that the last meeting of officials from the RBI and the Nepal Rashtra Bank was about a year ago. “There are currently no dates for any meetings in the future,” a Nepali foreign ministry official told The Wire on Wednesday.

Incidentally, Nepal’s Prime Minister K.P. Sharma Oli, prior to his visit to New Delhi, had indicated that he would take up the matter of Nepali citizens “facing problems due to India’s demonetisation policy” with Prime Minister Narendra Modi. After their talks, Oil told the media that he “requested Modi ji to facilitate the exchange of demonetised currency notes held in the Nepali banking system and by general public.”

Thereafter, Indian foreign secretary Vijay Gokhale described the issue as “highly complex”, but added that “talks are underway” between the Indian and Nepali central banks.

“The way that this matter of demonetisation remains unresolved speaks volumes of our bilateral relations and the state of the neighbourhood,” Sujeev Shakya, chairperson of Nepal Economic Forum, a Kathmandu-based think tank, told The Wire.

He said that while the lack of resolution on deciding the rules for exchange of demonetised currency notes reflected Nepal’s “knee-jerk, lackadaisical” approach, and India’s priorities.

Shakya pointed out that India had acted with alacrity in the case of Bhutan and exchanged all the demonetised currency notes.

India had been quick off the mark in the case of Bhutan, which officials said was due to the much easier bilateral relationship as well as the relative absence of security concerns about fake Indian currency circulation.