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RBI's Penalty Framework for Improved Bank Customer Service

Introduction

The Reserve Bank of India (RBI) has released a Master Direction that establishes a penalty framework aimed at improving customer service within bank branches and currency chests. This initiative reinforces the Clean Note Policy and enhances currency management among banks. It specifically targets issues such as shortages of notes and coins, counterfeit notes, breaches of operational directives, violations of agreements with the RBI, and deficiencies in ATM cash replenishment.

Overview of the Master Direction

The Master Direction focuses on ensuring effective customer service across all bank branches and currency chests. It outlines specific penalties for various irregularities and details the competent and appellate authorities involved in administering these penalties.

Scheme of Penalties

Objective

The Scheme aims to guarantee that bank branches and currency chests provide satisfactory customer service, consistent with the Clean Note Policy objectives.

Penalties for Non-Compliance

The following penalties apply to various irregularities:

  1. Shortages in Soiled Note Remittances (SNRs) and Currency Chest Balances:

    • Denomination Up to ₹50: ₹50 per piece plus associated losses.
    • Denominations of ₹100 and Above: The denomination value per piece plus associated losses.
    • Coins: The value per piece plus associated losses.

    Penalties and loss recoveries must be executed immediately upon detection, irrespective of the quantity involved.

  2. Counterfeit Notes:

    • Banks are required to verify the authenticity of banknotes. A failure to impound counterfeit notes will be interpreted as willful complicity in their circulation.
    • Penalties are governed by DCM (FNVD) No.G-4/16.01.05/2025-26.

  3. Mutilated Notes:

    • A penalty of ₹50 per piece applies, regardless of denomination, in addition to any loss incurred.

  4. Non-Compliance with Operational Guidelines:

    • Penalty: ₹5,000 for each instance of non-compliance, escalating to ₹10,000 for repeated violations during successive inspections.
    • Examples of non-compliance include non-operational CCTV, improper cash storage, and failure to use Note Sorting Machines (NSMs).

  5. Violations of RBI Agreements:

    • Penalty: ₹10,000 for each violation. If there are more than five violations during consecutive review cycles, a penalty of ₹5 lakh will apply.

  6. ATM Non-Replenishment:

    • Penalties are imposed according to circular DCM(RMMT) No.S153/11.01.01/2021-22, dated August 10, 2021.
    • Banks must implement machine authentication for notes received over the counter and via bulk tenders. Any non-compliance will result in penalties under DCM (FNVD) No.G-4/16.01.05/2025-26.

  7. Penalties exceeding ₹5 lakh related to agreement violations must be made publicly available for transparency.

Operational Guidelines

Competent Authority

  • The Officer-in-Charge of the Issue Department at the Regional Office will determine the nature of any irregularity.

  • CCTV Guidelines:

    • Recordings must be maintained for 90 days (increased from 30 days).
    • Non-compliance entails inappropriate storage measures, such as branch cash stored in currency chest vaults.

  • Note Sorting Machines (NSMs):

    • Use of NSMs for sorting ₹100 and above notes is compulsory. Non-functional or outdated machines will incur penalties.

Illustrative Penalty Calculations

Example (Mutilated Notes):

  • For 200 pieces of ₹200 notes: Penalty = ₹10,000 (₹50 × 200) + Loss = ₹40,000 (₹200 × 200).

Example (CCTV Non-Compliance):

  • First offense: ₹5,000; recurrence within six months: ₹10,000.

Appellate Authority

  1. Appeals against penalties can be submitted to the Regional Director or Chief General Manager within one month of penalty notification. Waivers will only be considered when requested through the CyM-CC portal.
  2. Requests citing staff training or corrective actions taken will not be eligible for waiver consideration.

Clean Note Policy

This policy ensures that high-quality banknotes remain available to the public.

Memorandum of Agreement (MoA)

An MoA is established between the RBI and the bank to define the responsibilities related to the currency chest.

Linked Branches

Linked branches refer to those connected to a neighboring currency chest, aimed at providing chest services to all non-chest branches.

Terminology

  • Soiled Note: A note that has become dirty due to regular handling.
  • Mutilated Note: A note that is missing portions or consists of multiple pieces.
  • Imperfect Note: A note that has been altered or rendered unidentifiable, excluding mutilated notes.

By following this guidance, banks are encouraged to comply with customer service standards, thereby furthering the RBI’s overarching goals.