The Reserve Bank of India (RBI) on Friday said that it will withdraw the Rs 2,000 denomination banknote from circulation but it will continue as legal tender.
In a statement, the RBI said: "The 2,000 denomination banknote was introduced in November 2016 primarily to meet the currency requirements of the economy in an expeditious manner after the withdrawal of legal tender status of all 500 and 1,000 banknotes in circulation at that time."
It also said that all banks shall provide deposit and/or exchange facility for 2,000 banknotes until September 30, 2023.
The RBI said it will withdraw all the Rs 2,000 banknotes as a part of its clean note policy.
According to the RBI, people may deposit Rs 2,000 banknotes into their bank accounts and/or exchange them into banknotes of other denominations at any bank branch.
"Deposit into bank accounts can be made in the usual manner, that is, without restrictions and subject to extant instructions and other applicable statutory provisions," RBI said.
The central bank said in order to ensure operational convenience and to avoid disruption of regular activities of bank branches, exchange of Rs 2,000 banknotes into notes of other denominations can be made up to a limit of Rs 20,000 at a time at any bank starting from May 23, 2023.
To complete the exercise in a time-bound manner and to provide adequate time to the members of the public, all banks shall provide deposit and/or exchange facility for Rs 2,000 banknotes until September 30, 2023.
The facility for exchange of Rs 2,000 banknotes up to the limit of Rs 20,000 at a time shall also be provided at the 19 Regional Offices (ROs) of RBI having Issue Departments, from May 23.
"As witnessed during demonetisation, we expect the deposit accretion of banks could improve marginally in the near term. This will ease the pressure on deposit rate hikes and could also result in moderation in short-term interest rates," Karthik Srinivasan, Senior Vice President Financial Sector Ratings, ICRA said.
According to the RBI, the Rs 2,000 denomination banknote was introduced in November 2016 primarily to meet the currency requirements of the economy after the demonetisation of Rs 500 and Rs 1,000 denomination currencies in circulation.
The objective of introducing Rs 2,000 banknotes was met once banknotes in other denominations became available in adequate quantities. And printing of Rs 2,000 banknotes was stopped in 2018-19.
The RBI said 89 per cent of the Rs 2,000 denomination notes have reached their life cycle end as they were issued prior to March 2017.
The total value of these banknotes in circulation has declined from Rs 6.73 lakh crore at its peak as on March 31, 2018 (37.3 per cent of notes in circulation) to Rs 3.62 lakh crore constituting only 10.8 per cent of notes in circulation on March 31.
It has also been observed that this denomination is not commonly used for transactions. Further, the stock of banknotes in other denominations continues to be adequate to meet the currency requirements of the public, the RBI said.