Exams

Money – Types

Fifty paise (half rupee) coin shall be legal tender for any sum not exceeding ten rupees. (₹ 10)

2016

In India, coins of one rupee or higher can be used for amounts up to one thousand rupees. (₹ 1000)

Ministry of Finance (GOI)

Security Printing and Minting Corporation of India Limited

Mumbai, Kolkata, Hyderabad, and Noida.

King George VI Coin Series Rs. 1 Coin

As per Section 6 of coinage Act it is a legal Tender as a coin of any denomination not lower than one rupee, for any sum not exceeding one thousand rupees will be a legal Tender. However, it will be foolish as they are mostly made up of Silver and costs much higher than their face value.

1. Coins

Coins are a form of Limited Legal Tender Money. It is a type of money that can be used to pay off a debt up to a certain amount, after which a person can refuse to accept the payment and no legal action can be taken against them. In India, coins are only legal tender in limited quantities.

Limit for Coins in India

Here are the legal tender limits for coins in India according to Indian Coinage Act 2011 Section 6:

⇒ 50 paise coins: Can be used for amounts upto. Below 50 paisa were withdrawn from from Hence 50 Paise is still a Legal Tender in India. Coins in India up to 50 paise are called “small coins”

⇒ Coins of 1 rupee or higher: Can be used for amounts up to upto . Coins of one rupee and above are called “Rupee Coins”.

While people cannot be forced to accept coins beyond these limits, they can voluntarily accept them.

Governance – Issuance, Design and Circulation

The Coinage Act, 2011 is an act that consolidates laws related to coinage, mints, and the protection of coinage. It also prohibits the melting or destruction of coins via section 12 (1), and the making or possession of coins for issue. According to it

⇒ Coin issuance and Design: The Ministry of issues coins in various denominations on behalf of the Government of India. The government decides on the quantity of coins to be minted on the basis of indents received from the RBI on a yearly basis.

⇒ Circulation: The RBI is the sole authority for putting coins into circulation. The RBI buys the coins from the Government of India and includes them in its balance sheet.

Minting of Coins in India

The coins are minted by SPMCIL a government-owned company. It has four mints in – Located in Map infographic – Key 🔴 : Locations

Coin Series in India – A Timeline [ For Banking 🏛️ Exam Only ]

1947 - 19501950-19571957 - 19631964 - 19831982 Onwards2004 - 20072007 Onwards2007 Onwards2011 Onwards2019 Onwards

Frozen Series

Lasted for three years (1947-1950), i.e., during the transition period until India became a republic. The new Dominion (or Union) of India retained the previous imperial currency design with a portrait of King George VI

Anna Series

Introduced on 15th August 1950 and was the first coinage system of republic India. Here King’s Portrait was replaced by Lion Capital of the Ashoka Pillar . Notable feature of them – Indian motifs were incorporated. In some ways this symbolised a shift in focus to progress and prosperity

Naya Paisa series

It was adopted in the year 1957 and was used until 1964 , after which, the term ‘naya’ was dropped from the series. Distinguishing feature it had a legend in script Devnagri explaining the value of coin in terms of fraction of a rupee.

Paisa Series

In June 1964, the term was dropped and the coins were reminted. The legend in Devanagari script explaining the value of coin in terms of fraction of a rupee continued. However this was also dropped was dropped post 1965 , i.e coin minted from 1965 did not have the legend in Devanagari, explaining the value of the coin as a fraction of the rupee

New Denomination Series

Up till now maximum denomination that was minted was Rs 1. But In 1982, the Rs. 2/- coin was introduced, followed by the Rs. 5/- coin in 1992. The Rs. 2/- coin featured an India map superimposed with the national flag, symbolizing national integration, while the Rs. 5/- coin depicted lotus buds, flowers, stems, and leaves.

Unity in Diversity Series

It featured an equal-armed cross with the beams divided into rays and with dots between adjacent beams. For the first time 10 Rs Coins were minted. They were also the first bimetallic coins issued in India. This series was also the most controvertial as public protested specially on the Rs 2 and 10 Coins as people have charged that the symbol is a Christian cross. Because of this controversy and Rs 10 being minted in only one mint, most of the coinage never found its way into circulation.

Hasta Mudra Series

These coins are stainless steel and feature various hasta Mundas / Nritya Mundas (hand gestures in Indian Classical dance). These coins got stuck at 5 Rupees as the open hand resembled the party logo. Hence 5 rupee and 10 rupee coins were not the part of the Hasta Mudra series and a new series had to be adopted

Common Circulation Series

The Design of these Coins were pretty Simple with numerical value denoted in the centre of the coin. In this Series only The 5 rupee and 10 rupee coins were issued

Rupee Symbol (₹) Series

The year 2011 saw the new definitive coin series with the new rupee symbol “₹”. While the design was similar to Common Circulation but a rupee symbol “₹” was added. The 50 Paise coin never minted after 2016 though it’s still a legal tender

2019 Grain Series

This new series have a design of grains to denote farm dominance of the nation. Various new features have been incorporated in the new series of circulation coins to make them more easy for the visually impaired people to use. The coins are characterized by increasing size and weight from lower to higher denominations from ₹1 to ₹20. All of the denominations would be of round shape, except the newly included coin of ₹20, which will be a 12 sided coin with no serrations.

Commemorative Coin

Commemorative or ceremonial coins are issued to commemorate specific events, celebrate notable individuals, or promote certain messages. These coins feature distinctive designs that reference the occasion for which they were issued. They are often minted in denominations larger than regular coins

It is the Union Finance Ministry that ultimately decides whether to issue commemorative coins or not.. State governments, government-run cultural institutions, or even private organizations can request the government to issue commemorative coins. Typically, commemorative coins are produced in limited quantities and retained by the Reserve Bank of India (RBI) as collectors’ items ; who is also the authority to ciculate it.

The first commemorative coins in India were issued in 1964 after the death of Prime Minister Jawaharlal Nehru.

2. Paper Money

In India, paper currency is unlimited legal tender, meaning it can be used to pay off debts of any amount. The Reserve Bank of India (RBI) issues currency notes, and the central government promises to pay the bearer an equivalent sum of money

Unlimited Legal Tender is it right in Practice?

While RBI Act 1934 under Section 26 says: Every bank note is legal tender in India and can Settle any amount of debt. But Finance Act 2017 says paper money can be used for : “cash transactions for less than Rs.2 lakh only,” Beyond that use Cheque, DD, NEFT etc. else penalty= entire amount. However in theory they are unlimited

Governance – Issuance, Design and Circulation

The Reserve Bank of India (RBI) Act of 1934 governs the issue of banknotes in India, including their denominations, design, and other aspects: According to it

⚬ Paper Money issuance/ printing : The Reserve Bank of India (RBI) is responsible for issuing currency notes in India other than ₹ 1 Note under Section 22 of RBI Act 1934. The One Rupee note is issued by the Ministry of Finance and it bears the signatures of the Finance Secretary, while other notes bear the signature of Governor RBI. Section 25 states that “the design, form, and material of bank notes shall be such as may be approved by the Central Government after consideration of the recommendations made by the RBI’s Central Board”. If the design of a currency note has to change, the Department works on the design and submits it to RBI, which recommends it to the central government. The government gives the final approval. The government decides on the quantity of coins to be minted on the basis of indents received from the RBI on a yearly basis.

Banknotes in India are currently being issued in the denomination of Rs 10, Rs 20, Rs 50, Rs 100, Rs 200, Rs 500 and Rs 2000.

⚬ Circulation: The Reserve Bank of India (RBI) is responsible for circulating paper notes in India. The RBI’s Department of Currency Management, currently headed by Deputy Governor, has the responsibility of administering the core function of currency management.

Printing of Paper Currency in India

Two of India’s currency note printing presses are owned by the Government of India and two others are owned by the RBI through its wholly owned subsidiary, Bharatiya Reserve Bank Note Mudran Ltd (BRBNML). Lets Locate them through our Map Infographic. Key 🔴: Locations of Printing Presses

Paper Money Series in India [ For Banking 🏛️ Exam Only ]

1949199620052016

Ashoka Pillar Banknotes: The first banknote issued in independent India was the Re 1 note issued in 1949. While retaining the existing design, the new banknotes replaced the portrait of King George with the symbol of the Lion Capital of the Ashoka Pillar at Sarnath in the watermark window.

Mahatma Gandhi (MG) Series, 1996: All the banknotes of this series bear the portrait of Mahatma Gandhi on the obverse (front) side, in place of the symbol of Lion Capital of Ashoka Pillar, which was moved to the left, next to the watermark window. These banknotes contain both the Mahatma Gandhi watermark as well as Mahatma Gandhi’s portrait.

Mahatma Gandhi Series, 2005: The “MG series 2005” notes were issued in denominations of Rs 10, Rs 20, Rs 50, Rs 100, Rs 500, and Rs 1,000. They contain some additional/ new security features as compared to the 1996 MG series. The Rs 500 and Rs 1,000 notes of this series were withdrawn w.e.f. the midnight of November 8, 2016.

Mahatma Gandhi (New) Series, 2016: The “MGNS” notes highlight the cultural heritage (10 – 500) and scientific achievements of the country (2000) . Being of reduced dimensions, these notes are more wallet friendly, and are expected to incur less wear and tear. The colour scheme is sharp and vivid.The new notes also have design elements in myriad and intricate forms and shapes.

Security Features of the Currency Note in India [ For Banking 🏛️ Exam Only ]

The security features in the current series of bank notes are largely same than the previous MG edition such as water mark, security thread, latent image of denomination numeral, denomination numeral in colour shifting ink, number panels, see through register, electro-type, bleed lines, etc., continue to remain, their relative positions may have changed in the new design notes. These notes contain distinct easily recognizable security features to facilitate the detection of genuine notes vis-à-vis forgeries.

Demonetization in India – A Timeline

1946197820162023

The first demonetization in India occurred when the Rs 1,000 and Rs 10,000 notes were removed from circulation. However, these notes were reintroduced in 1954, along with the Rs 5,000 note.

The second demonetization occurred when the Rs 1,000, Rs 5,000, and Rs 10,000 notes were banned

The third and most recent demonetization occurred on November 8, 2016, when the Rs 500 and Rs 1,000 notes were banned. The main objectives of this demonetization were to curb black money, corruption, and counterfeit currency, and to promote a digital economy.

The Union Government notified the Specified Bank Notes (Cessation of Liabilities) Act, 2017 (Section 5) to prohibit the holding, transferring or receiving of scrapped old Rs.500 and Rs. 1000 currency notes from 31 December, 2016. (Section 6 and 7 of the Act Specify the Punishments). After the expiry of grace period, holding of not more than 10 notes in total, irrespective of denomination or not more than 25 notes for the purpose of study/ research/ numismatics is permitted.

The Reserve Bank of India (RBI) announced that it would remove the Rs 2,000 note from circulation. The RBI provided a timeframe of until September 30, 2023 for individuals to deposit or exchange the notes. This move was part of the RBI’s Clean Note Policy.. Despite this significant decline, Rs 2,000 notes are still recognised as legal tender, meaning they can be used for transactions until further notice.

Mains Practice Question: Recently, the RBI has withdrawn the higher value currency notes as part of its Clean Note policy. Analyze the potential benefits and drawbacks of this step, considering its implications on the Indian economy. (250 Words)

Approach

Start your answer by mentioning RBI’s recent move to withdraw 2000 Rupee Note.

In the body section, mention potential benefits and drawbacks of such move.

Conclude accordingly

Introduction

The RBI, recently, announced that in pursuance of the “clean note policy”, it has been decided to withdraw the ₹2,000 denomination bank note from circulation. The note was introduced in November 2016 to address the process of re-monetisation in the aftermath of demonetisation to meet the currency requirement of the economy.

Body

Potential benefits and drawbacks of withdrawing the higher value currency notes:

Benefits:

It may help curb black money and counterfeiting, as these notes are easier to hoard and circulate in the informal economy.

It may also encourage digital payments and financial inclusion, as people may shift to using more electronic modes of transactions and bank accounts.

It may reduce the operational costs and logistical challenges of handling high-value currency notes, as these notes require more security, storage and transportation.

The withdrawal aligns with the RBI’s Clean Note Policy, which aims to improve the quality and hygiene of banknotes in circulation.

Drawbacks:

It may cause inconvenience and disruption to the public, especially those who rely on cash for their daily transactions and do not have access to digital or banking facilities.

It may create a shortage of currency in circulation, as these notes constitute about 10.8% of the total value of notes in circulation as on March 31, 2023.

It may affect the rural economy and small businesses, as these sectors depend largely on cash transactions and may face difficulties in exchanging or depositing their old notes.

Withdrawal of high-value notes can cause temporary liquidity shortage and disrupt cash-based transactions if alternative denominations are not available, affecting economic activities.

Conclusion:

The withdrawal of the 2000 rupee note has pros and cons for the Indian economy. It can help curb black money, reduce counterfeiting, promote digital transactions, and streamline currency management. However, there are concerns about inconvenience, challenges for cash-dependent sectors, liquidity impact, and currency substitution. The policy’s success depends on effective implementation and addressing these drawbacks for a smooth transition.

3. Paper Orders – Cheque and Demand Draft

A cheque is a written order from an individual (the drawer) to their bank (drawee) to pay a specific amount to another individual or entity (the payee).. A cheque may be regarded as a bill of exchange, as such, it is also called a negotiable instrument.

While a demand draft, also known as a banker’s cheque, is a pre-paid instrument issued by a bank on its own behalf, guaranteeing payment to the recipient (payee)

Though increasingly convenient, both cheques and demand drafts are slowly getting outdated because of their slow processing periods. Now, you have instant banking solutions like NEFT and RTGS mechanisms that do not get dishonoured and may be availed from anywhere.

Important Components of a Cheque

There are 3 Parties Involved in a Cheque –

1) Drawer (who writes/ draws the cheque)

2) Payee (whose order the cheque is drawn for), and

3) Drawee (the bank which has the drawer’s operating account from which the cheque amount is to be paid)

Apart from these three, there are two more parties involved with a cheque –

4) Endorser: When a party i.e. payee transfers his right to take the payment to another party, he/she is called endorser.

5) Endorsee: The party in whose favour, the right is transferred, is called endorsee.

Apart from the Parties Involved Other Terms and Components related to Cheque are Explained in the Infographic . Key – ▭

Types of Cheque

⇒ Bearer Cheque : The bearer cheque is a type of cheque in which the bearer is authorised to get the cheque encashed. This means the person who carries the cheque to the bank has the authority to ask the bank for encashment.

⇒ Order Cheque: This type of cheque cannot be endorsed, i.e., only the payee, whose name has been mentioned in the cheque is liable to get cash for that amount. The drawer needs to strike the “OR BEARER” mark as mentioned on the cheque so that the cheque can only be encashed to the payee.

⇒ Crossed Cheque: In this type of cheque, no cash withdrawal can be done. The amount can only be transferred from the drawer’s account to the payee’s account. Any third party can visit the bank to submit the cheque.

⇒ Mutilated Cheque: If a cheque reaches the bank in a torn condition, it is called a mutilated cheque, the bank shall reject the cheque and declare it invalid, until the drawer confirms its validation.

⇒ Stale Cheque : In India, any cheque is valid only until 3 months from the date of issue. So if a payee moves to the bank to get withdrawal for a cheque which was signed 3 months ago, the cheque shall be declared a stale cheque.

⇒ Post-dated: If a drawer wants the payee to apply for withdrawal or transfer of money after the present date, then he/she can fill a post dated cheque.

⇒ Anti-Dated: A Cheque in which the drawer mentions the date earlier than the date of presenting it for payment is called an ante-dated cheque

⇒ Traveller’s Cheque: As the name suggests, the Traveler’s cheque can be used when a person is travelling abroad where the Indian currency is not used.

⇒ Blank Cheque When a cheque only has a drawer’s signature and all the other fields are left empty, then such a type of a cheque is called a blank cheque.

Important Components of a DD

There are 2 Parties Involved in a DD –

1) Drawer (who issues/ draws the cheque) in this case is the Bank Itself

2) Payee (whose order the DD is drawn for), and

Apart from the Parties Involved Other Terms and Components related to DD are Explained in the Infographic . Key – ▭

Difference between a Cheque and DD

Aspect	Cheques	Demand Drafts
Payment Process	A cheque is a written order from an individual (the drawer) to their bank (drawee) to pay a specific amount to another individual or entity (the payee).	A demand draft, also known as a banker’s cheque, is a pre-paid instrument issued by a bank on its own behalf, guaranteeing payment to the recipient (payee)
Issuer	Cheques can be issued by individuals, businesses, or other entities from their own bank accounts.	Demand drafts are exclusively issued by banks themselves.
Payment Guarantee	While cheques provide a means of payment, they may not always be guaranteed. There is a risk of a cheque bouncing if the drawer’s account lacks sufficient funds.	Demand drafts, on the other hand, provide a higher level of payment guarantee as they are pre-paid instruments issued by the bank.
Payment Confirmation	Payment confirmation is not guaranteed before submission of the cheque. It is subject to the drawer’s account balance.	Demand drafts provide confirmed payment status before issuance, ensuring that funds are available.
Stopping Payment	A cheque can be stopped or cancelled by the drawer under valid circumstances, such as loss or error.	Once a demand draft is issued, it cannot be stopped or cancelled by the drawer.
Parties Involved	In a cheque transaction, three parties are involved: the drawer (issuer), the drawee (bank), and the payee (recipient).	A demand draft transaction involves two parties: the drawer (bank) and the payee (recipient).
Additional Charges	Generally, issuing a cheque does not involve additional charges, but fees may apply for bounced cheques.	Banks may charge a fee for issuing a demand draft, often depending on the draft’s value.
Security and Risk	Cheques can be risky if they are not marked “account payee” as anyone can cash them, posing potential security risks.	Demand drafts provide higher security as they can only be claimed by the designated payee, reducing risks of unauthorized use.
Acceptance in Transactions	Cheques may not always be widely accepted in business transactions due to concerns about bouncing and security risks.	Demand drafts are commonly accepted in business transactions due to their guaranteed payment status.
Dependability in Transactions	Cheque transactions may lack reliability due to the possibility of bounced cheques or delays in clearance.	Demand drafts are highly reliable, especially in the digital banking era, offering swift and secure payment transactions.

Types of DD

⇒ Sight Demand Draft: This type of demand draft is paid to the payee immediately. Sometimes, banks request specific documents from the payee and would only pay the draft after those documents are provided.

⇒ Time Demand Draft: In this type of demand draft, the bank pays the amount only after a specified period, i.e., the demand draft clearing time.

Wha is Overdraft?

When person has insufficient bank balance, still he may withdraw money from his account (as a loan). Such facility is called Overdraft. Pradhan Mantri Jan-Dhan account has Overdraft upto Rs 10,000/- with certain conditions.

Note: Overdraft is mainly for short-term operating expenses whereas Loans is mainly for longer term higher value expenses.

4. Electronic Orders – Traditional online transfer methods– NEFT, RTGS, IMPS

India currently has various methods to transfer money online such as digital wallets, UPI, and more. However, the most commonly used online fund transfer method has been:

⇒ National Electronic Funds Transfer (NEFT)

⇒ Real-Time Gross Settlement (RTGS)

⇒ Immediate Mobile Payment Service (IMPS)

While NEFT and RTGS were introduced by RBI (Reserve Bank of India), IMPS was introduced by National Payments Corporation of India (NPCI). Let us Study about them First

Comparision between NEFT vs RTGS vs IMPS

Comparision Category	RBI’s NEFT	RBI’s RTGS	NPCI’s IMPS
Settlement Type	Half hourly batches	Real-time	Real-time
Minimum Transfer Limit	₹ 1	₹ 2 lakh	₹ 1
Maximum Transfer Limit	No Limit. though individual banks may impose their own limits	No limit for Branch Transactions. Online Transaction may have an Upper Limit Depending on Banks	₹ 2 lakh (Previously) ₹ 5 lakhs in October 2021
Service Timings	BEFORE: only weekday office hours. Now 365 days 24×7	BEFORE: only weekday office hours. Now 365 days 24×7	Available 365 days 24/7
Transaction Charges	No charges for inward transactions (at destination bank branches for credit to beneficiary accounts)	No charges for inward transactions. No Charges for online transactions. Charges applicable for outward transactions Only – Rs 2,00,000–5,00,000: No more than Rs 25, excluding any tax Above Rs 5,00,000: No more than Rs 50, excluding any tax	Charges for remittance through IMPS are decided by the individual member banks and PPIs. The taxes are included.
Payment Options	Online and Offline	Online and Offline	Online
Who can Provide this Facility	BEFORE-2021: Only Banks can provide this facility 2021: RBI announces that non-bank entities can also become members of centralized payment systems (CPS = NEFT & RTGS). So, in future, Amazon pay, Phone Pe etc could also directly allow this	Same as NEFT	Banks + Prepaid Payment Instrument (PPI)/ / mobile-wallet companies like Phonepe, Mobikwik etc.

What is NPCI?

⇒ NPCi is registered Company under Company Act as a “Not for Profit Company”. Originally it was founded by 10 banks with ₹ 100cr capital. 2020-Dec: Paytm, PhonePe, Amazon Pay etc also became shareholders of NPCi

⇒ Objective? cost-effective payment solutions / technology for Banks.

⇒ Its UPI-BHIM app & other mechanisms also help in financial inclusion of villagers & poors by expanding the reach of banking network.

5. Electronic Orders – UPI and TPAPs

UPI represents a modern, user-friendly approach to digital payments. It is a technology for building digital payment apps based on IMPS. Examples of UPI based app: SBI’s SBIBuddy/Yono, Axis Bank’s AxisPay and NPCi’s own BHIM.

Such app can have Push transaction (when the payer send money by your own discretion e.g. Remittance to family), Pull Transaction (where the payee, or recipient, initiates the payment, rather than the payer, e.g. monthly bill deduction by Electricity Co.) or even Bill sharing among friends.

UPI in India – A Timeline

20162018

UPI 1.0

NPCI launched UPI with 21 member banks in 2016. It only allowed for peer-to-peer payments and Domestic Transaction Facilities. It also did not support recurring Payments

UPI 2.0

Upgraded version with following features: – like overdraft Facility (allowing users to make payments even if their bank account balance is low), Invoice in the inbox, QR authenticity, International Transactions along with support for recuring payments

NPCI’s UPI based Services

RBI’s UPI Based Services

QR Codes

TPAPs

6. Electronic Orders – Plastic Money

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