RBI to roll out varnished banknotes with enhanced security features amid cash surge

An increase in demand for banknotes, which had led to currency to gdp ratio rising to 12.1% from 11.7% in FY25, has been attributed to a `strong preference for cash’ among individuals and small merchants according to an RBI survey.

With counterfeit notes seeing a marginal rise, RBI plans to introduce new security features and is also trying out varnished currency notes.

The value of banknotes in circulation rose 11.9% to Rs 41.24 lakh crore at end-March 2026, while volumes increased 10.5% to 17.13 lakh pieces, reflecting sustained demand. Coin circulation also expanded, with value rising 11.4% to Rs 40,814 crore and volumes up 4.5%.

Following the near-complete withdrawal of Rs 2000 notes, of which 98.45% has returned to the banking system, the Rs 500 denomination has emerged as the backbone of the cash economy. It accounted for 41.2% of total notes by volume and 85.5% by value, far outpacing other denominations.

The surge in high-value notes has coincided with a shift in counterfeiting patterns. The total number of fake Indian currency notes detected increased to 229,746 pieces in FY26 from 217,396 a year earlier, driven largely by a 20.5% jump in counterfeit Rs 500 notes to 141,907 pieces. Counterfeit detections in most other denominations declined, with banks detecting 97.6% of all fake notes.

Despite higher circulation, the RBI’s currency printing expenditure declined sharply to Rs 4,875.2 crore in FY26 from Rs 6,372.8 crore in the previous year, as the central bank reduced its indent for fresh notes to 2.81 lakh pieces from 3.03 lakh pieces. The lower order size led to a corresponding reduction in operational costs.

On the technology front, the RBI is preparing to introduce upgraded banknotes with enhanced security features in a phased manner from mid-2026. The central bank has also developed anti-microbial and anti-bacterial treatments integrated into currency paper to improve hygiene and durability.

In parallel, trials for varnished banknotes aimed at extending the life of currency are underway at the Mysuru facility of Bharatiya Reserve Bank Note Mudran Private Ltd, signalling a shift towards more durable alternatives

An internal RBI survey on payment behaviour reaffirmed a continued strong preference for cash among individuals and small merchants, underlining the enduring role of physical currency in the economy despite rapid growth in digital payments.
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