Most RBI branches house shredding centres and the notes will be recycled for office and industrial use
Old notes can be used till December 15 at petrol pumps and government utilities and deposited in banks till the end of that month. But what happens to the 500 and 1,000 rupee notes that Prime Minister Narendra Modi banned earlier this month to combat corruption and black money?
The demonetisation exercise sucked 18 billion 500 and 1,000 rupee notes valued at Rs 14 lakh crore out of circulation. The Reserve Bank of India, the printer and issuer of currency, has inherited that mountain of paper and will now shred and pulp it for recycling, said government sources.
Most RBI branches house shredding centres and banks will send the old notes there in neat stacks and bundles to be turned into heaps of short strips. Much of that will be recycled into pulp and then either fashioned into briquettes or compressed blocks, or then will be used to make office stationary like calendars, paper weights, files and boards.
This is a relatively new disposal method for the central bank. Till 2001, old or discarded currency notes were incinerated.
Nowadays, most central banks use soiled notes to make briquettes. Shredded notes are compressed into a thick mass, varying in size but mostly cylindrical in shape. Large-sized briquettes weigh as much as 600 kg per cubic metre.
In 2012, briquettes made out of old notes were used in Hungary as fuel for fires to keep poor people warm during a severely cold winter.
Sources said the RBI had started prepping to deal with old notes days before PM Modi's announcement. A plywood company in Kerala's Kannur was shortlisted for a pilot project and was sent a few gunny bags of shredded 500 and 1,000 rupee notes for pulping.
The company has now signed a contract with the RBI to process 40 tons of shredded notes at Rs 250 per ton. The shredded notes will be tossed with fine wood chips and then passed through a heavy press.
The briquettes will be largely sold for industrial use via tenders. Each kilo of briquette will fetch about Rs 5 to 6.
The RBI regularly purges soiled and mutilated currency notes of different denominations. The central bank examines and sorts them and those that are not usable are disposed of under the currency verification and processing system or CVPS.
Currency notes worth thousands of crores are taken out of circulation every month.