Fake Currency in India: Get a Refund from the Bank?

Indian new currency.

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Counterfeit currency is a huge problem in India, and it's been exacerbated by the fact that banks have been slow to install fake currency detector machines.

In order to address the problem, the Indian government has required banks to be more accountable. The design of notes has also been changed to make them harder to copy, and a surprise demonetization of existing 500 and 1,000 rupee notes was implemented.

On November 8, 2016, the Indian government declared that all existing 500 rupee and 1,000 rupee notes would cease to be legal tender from November 9, 2016. The 500 rupee notes were replaced by new notes with a completely different design, and new 2,000 rupee notes were introduced. Since then, the Reserve Bank of India has progressively redesigned all currency notes. New 200 and 50 rupee notes were introduced in August 2017. This was followed by a new 10 rupee note in January 2018, a new 100 rupee note in July 2018, and a new 20 rupee note in April 2019.

However, it hasn't solved the problem. More fake notes than ever are being detected. As far as I know, I've never received fake Indian currency. However, I do know people who have, including from an ATM at a bank. It's shocking, but it shows how big the issue of fake currency is in India.

If it happens to you, what can you do?

Can You Get a Refund from the Bank?

In July 2013, the Reserve Bank of India (RBI) issued a directive designed to make banks more responsible for detecting and removing fake notes from circulation. To encourage customers to hand fake notes over to the banks, rather than try to surreptitiously palm them off, the directive stated that banks should accept the notes and give credit to the customer for their value. The directive also indicated that banks would be compensated for 25% of the loss incurred in respect of counterfeit notes above 100 rupees, which were detected by them and reported.

Based on this, it could be expected that if you received a fake note from a bank, you could hand it over for a refund. The reality was different though.

The wording of the directive was loose, there was no easy system in place to deal with counterfeit currency submitted to banks, banks still stood to lose 75% of the face value of the currency, and directives from the RBI are routinely flouted.

The Reserve Bank of India has subsequently revised the directive, removing the requirement for banks to reimburse the customer for the value of fake currency. Paragraph 2 currently states that, "No credit to customer’s account is to be given for counterfeit notes, if any, detected in the tender received over the counter or at the back-office/currency chest."

The directive has also withdrawn the bank's 25% compensation for detecting and reporting fake notes.

So, unfortunately, if you get stuck with counterfeit currency it's your concern. You can't get any money for it.

What Should You Do with a Fake Note?

No one wants to lose out on having received counterfeit currency. It's natural to want to try and recirculate it instead of reporting it. However, knowingly possessing fake notes is a punishable offense under Section 489 of the Indian Penal Code. If you identify a counterfeit note, by law you're required to inform the police. File a FIR (First Information Report) at the nearest police station for the matter to be investigated.

What if you received the fake note from an ATM?

The Reserve Bank of India holds banks accountable for any fake notes distributed by them and requires necessary safeguards to be put in place to ensure ATMs aren't loaded with counterfeit currency. Any dispensation of fake notes through ATMs is treated as an attempt to by banks to circulate the notes. Hence, the Reserve Bank of India will penalize a bank if it is found guilty.

Proving that you got the fake note from the bank's ATM is a challenge though! If you realize you've received a fake note before you leave the ATM, police suggest that you hold it up to the CCTV camera and/or report it to the security guard stationed at the ATM. Keep your ATM receipt as evidence as well. Banks will invariably deny that the fake note came from them.

Ideally, you should present the fake note to the bank. The bank will stamp the note as counterfeit, give you an acknowledgment receipt, and send the note to the Reserve Bank.

Wondering how to detect counterfeit notes? Find out more, including why the problem of counterfeit currency is so huge, in this article about fake Indian currency and how to spot it.

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