The decision also aims to rationalise the currency structure.
The Reserve Bank of India (RBI) will withdraw Rs 2,000 denomination banknotes that were in circulation since 2016. The central bank mentioned several reasons that influenced its decision to withdraw the currency notes.
Citing data from a report titled 'India Digital Payments Annual Report', the RBI said the use of the Unified Payments Interface (UPI) and digital payments increased tremendously in the last few years. Payment modes like UPI, Credit, Debit cards, Mobile and Prepaid cards processed 87.92 billion transactions worth Rs 14.92 lakh crore in 2022 alone.
The Reserve Bank of India said the decision is a part of its 'Clean Note Policy' to ensure the availability of high-quality bank notes to people. The majority of the Rs 2,000 denomination was issued before March 2017 and "reached its estimated life-span of four-five years", the RBI said.
"About 89 per cent of the Rs 2,000 denomination banknotes were issued before March 2017 and are at the end of their estimated lifespan of four-five years. The total value of these banknotes in circulation declined from Rs 6.73 lakh crore at its peak of 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, 2023," the RBI said.
The decision also aims to rationalise the currency structure and ensure the availability of lower denominations in the market.
Terming it as a usual practice adopted by the RBI, the central bank said a similar decision was undertaken for the withdrawal of notes from circulation in 2013-2014. In January 2014, the RBI completely withdrew all currency notes issued before 2005.
The notes will be gradually pulled out and will continue to remain legal tender. The RBI has provided a window until September 30 for the public to either deposit or exchange their banknotes. The deadline can be extended only if the need arises, sources told NDTV.