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How to exchange damaged bank notes?

UPDATE: These rules have since been revised in Dec 2018. The updated refund rules are discussed in blog post Damaged Notes: RBI Rules To Exchange And Claim Refund.

It always gives a bad feeling to carry a dirty or damaged currency note in our pockets. So we try to palm it off to an unsuspecting person or donate it to God.

Well, you don't need to take such dubious steps to get rid of your shabby or torn notes.

Specific guidelines laid down by RBI — i.e. Reserve Bank of India (Note Refund) Rules, 2009 — permit you to exchange them for a better one.

To begin with, the damaged banknotes are classified into three categories viz. Soiled, Mutilated and Imperfect. These have been defined as under:

a. Soiled Banknote: This is one which has become dirty due to daily use. Two pieces of the same note pasted together, so that it becomes one proper entire note, also comes this category.

b. Mutilated Banknote: This is when a portion of the banknote is missing. It also includes those that have got torn into 'more than two' pieces. 

c. Imperfect Banknote: Wholly or partially obliterated, shrunk, washed, altered or indecipherable banknote, which does not come under the mutilated note category, is defined as an imperfect banknote.

Is your Bank Note Soiled, Mutilated or Imperfect?

RBI has authorized all banks to accept and replace the damaged banknotes. In fact, they have to extend this facility of exchanging damaged notes to everyone i.e. their customers and even the non-customers.

However, depending on the extent of damage and the denomination, you may or may not get the full value. RBI guidelines stipulate the following rules for 'value in exchange' of the damaged notes:

1. You will get full value for the soiled notes.

2.  For mutilated banknotes
i.   Full value is exchanged for denominations up to Rs.20, if the single largest undivided piece of the damaged note is more than 50% of the area   
ii.  Full value is exchanged for denominations Rs.50 and above, if the single largest undivided piece of the damaged note is more than 65% of the area
iii. Half value is exchanged for denominations Rs.50 and above, if the single largest undivided piece of the damaged note is between 40% to  65% of the area
iv. Notes up to Rs.20 cannot be exchanged for half value.

3. For imperfect banknotes full / half value is paid... on the same lines as mutilated notes... provided the printed matter on the note is not totally illegible and it can proven that it is a genuine note.

Accordingly, you will not receive any value in exchange in the following cases:
- For damaged notes up to Rs.20, if the area of single largest undivided piece is less than 50%
- For damaged banknotes of Rs.50 and more, if the area of single largest undivided piece is less than 40%
- If it is not possible to determine whether the note is genuine
- When the note has been mutilated, made imperfect, cut, torn or altered in any manner so as to make a false claim or defraud the bank 
- When it carries any words or drawings that convey a political / religious message or furthers the interest of any person / entity
- If it has been imported into India in contravention of any law

Banks receiving such non-payable damaged banknotes have to retain and send them for destruction to RBI.

Here's a very interesting point when it comes to the exchange of damaged notes. The value of exchange of any note is not dependent on the presence or absence of its serial number (or, for that matter, any other specific feature).

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