Govt to amend RBI Act to cancel old high-value currency notes

New Delhi, December 11

The central government is likely to amend the Reserve Bank of India Act to make old Rs 500 and Rs 1000 invalid.

The amendment can be made effective from March 31, sources said. A reference will also be made in the Union Budget.

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"In 1978, when the currency was banned, the law to annul the validity came before. This time the government acted under 26 (2)," the sources said.

According to the section, the central government could declare that a banknote will no longer be used as legal tender by a notification in the Gazette of India.

Asked about the amount of money that did not get into the system, sources said it would add to bottom line of the RBI and it would be in a position to pay the government in the form of higher dividend or special dividend.

Banks have received Rs 12 lakh crore demonetised currency notes. The central government expects Rs 13 lakh crore to come back into the banking system.

Higher dividend from the RBI due to cancellation of Rs 500 and 1000 may not be applicable until the RBI law is amended.

Last week, Reserve Bank Governor Urjit Patel had said it would not have any automatic impact on the central bank's balance sheet under the existing law.

"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," Patel had said.

The RBI has issued currency notes worth over Rs 4.27 lakh crore to public through banks and ATMs following the demonetisation of old high value bills.

After the central government announced on November 8 that it was invalidating old banknotes of Rs 500 and Rs 1000, the central bank made arrangements to have the money either exchange or deposited. The announcement sent people scurrying to banks and ATMs across the country. — PTI