Fake Note, Real Consequences: A Bank's Complete SOP Under RBI's Updated Counterfeit Notes Master Direction

Quick Answer: Consolidated direction: RBI's consolidated Master Direction on Counterfeit Notes, Detection, Reporting and Monitoring (RBI/DCM/2026-27/394), updated as on 1 September 2026, replaces all earlier circulars on the subject. What it prescribes: An exact, auditable workflow for banks, from machine detection at the counter to police reporting, Forged Note Vigilance Cell (FNV Cell) oversight and monthly/half-yearly reporting to RBI. Enforcement stance: Failure to impound a detected counterfeit is treated as wilful involvement in circulation and attracts penalties.

Banking & Finance · RBI Master Direction · Updated: 1 September 2026 (orig. 1 April 2026) · Reading time: 9 min · Reference: RBI/DCM/2026-27/394

Which Banks and Branches Must Comply?

• All Banks and their branches
• Currency Chest (CC) branches specifically
• Bank-level Forged Note Vigilance Cells (FNV Cells) and District Nodal Bank Officers
• Bank Chief Vigilance Officers (CVOs) for escalation and disciplinary oversight

What Must a Bank Do When a Counterfeit Note Is Detected?

1. Machine-examine every note tendered over the counter and received at back offices/Currency Chests - manual visual checks alone are not sufficient.
2. Never credit the customer's account for any counterfeit note identified in the tender received.
3. Impound the note immediately, it can never be returned to the tenderer or destroyed at branch level.
4. Stamp "COUNTERFEIT NOTE" on the note (5cm × 5cm as per Annex I) and log it in a dedicated authentication register.
5. Issue an acknowledgement receipt (Annex II) capturing serial number, denomination and the specific security features breached, obtain the tenderer's signature; if refused, record that fact and still issue the receipt. A notice about this receipt-issuance practice must be displayed prominently at the branch/office for the public's information.
6. Choose the correct police-reporting track (see below), and forward a copy of the report/FIR to your bank's FNV Cell at Head Office without delay.

• Up to 4 notes in a single transaction → include in the monthly consolidated report (Annex III) to the local/Nodal Police Station, obtaining a police acknowledgment.
• 5 or more notes in a single transaction → file an FIR immediately (Annex IV format), with full serial-number and tenderer detail and must also cite the legal basis for action printing/circulation of Fake Indian Currency Notes is an offence under Sections 178 to 182 of the Bharatiya Nyaya Sanhita, 2023. If the matter proceeds to court, forensic examination and expert evidence are governed by Section 328(1) to (3) of the Bharatiya Nagarik Suraksha Sanhita, 2023.

1. FNV Cell compiles and reports monthly to RBI (Annex VII, by the 7th of the following month), including a Nil report where nothing was detected that month.
2. Obtain police acknowledgment for every report/FIR sent (keep delivery proof if via insured post), if a station is reluctant, escalate to their Counterfeit Note Nodal Officer
3. The Bharatiya Nyaya Sanhita, 2023 definition of 'counterfeiting' also covers currency notes of a foreign government. If a suspected counterfeit foreign currency note is received for an opinion, forward the case to the Interpol Wing of the CBI, New Delhi, after prior consultation with them.
4. Additionally upload data to the FIU-IND FINnet Portal (by the 15th of the succeeding month) as required under Rule 8(1) of the Prevention of Money Laundering (Maintenance of Records) Rules and separately upload the same detection data to the NCRB Portal monthly basis, as a distinct RBI reporting requirement.
5. Submit half-yearly status reports (Annex V, within a fortnight from the end of the respective half-year-March/September) covering CCTV coverage, machine adequacy, FIR pendency and reporting-compliance metrics.
6. Update FNV Cell particulars annually (Annex VI, by 15 April) - addresses, officer names, phone/email.
7. Preserve impounded/court-related counterfeits safely for 3 years (from receipt-back date for routine cases, or from case-conclusion date if under litigation), subject to half-yearly verification (31 March & 30 September), and transfer to the RBI Issue Office thereafter.

What Are the Forged Note Vigilance (FNV) Cell's Core Responsibilities?

• Disseminate RBI's counterfeit-note instructions to all branches/Currency Chests and monitor implementation
• Escalate every acceptance/issuance incident to the bank's Chief Vigilance Officer
• Conduct surprise inspections at Currency Chests with significant counterfeit detections
• Oversee machine operations - ensure Note Sorting Machines run at appropriate capacity with daily processing logs.
• Enforce quality control so only machine-verified notes reach ATMs and counters.
• Cover the banking hall/counters under CCTV surveillance and preserve the recordings as per internal policy, to help identify people abetting circulation of Counterfeit Notes.
• Progress on detection, reporting and related problems must be discussed regularly at State Level Bankers' Committee (SLBC), Standing Committee on Currency Management (SCCM), and State Level Security Committee (SLSC) meetings.

What Infrastructure Must Banks and Currency Chests Maintain?

• Ultra-violet lamps and Note Authentication Machines at every branch.
• Verification, processing and sorting machines at all Currency Chest branches, operating at optimum capacity.
• Note-counting machines with dual display at public counters
• All machines must conform to prescribed Note Authentication and Fitness Sorting Parameters and carry required BIS certification.
• Controlling offices/training centres must run regular training programmes on the security features of genuine banknotes for all cash-handling staff, covering detection, impounding, and reporting of Counterfeit Notes - RBI provides faculty support and training material where needed.

Penalties for non-compliance: Failure to impound a detected counterfeit note is treated as the bank's wilful involvement in circulating counterfeit currency and attracts a penalty. Aggravated triggers - counterfeits in soiled-note remittances, counterfeits found in Currency Chest balances during RBI inspection, or ATM dispensation of counterfeit notes - can lead to enhanced penalties, special police investigation, and suspension of Currency Chest operations. This ATM-dispensation rule applies equally to White Label ATM Operators (WLATMs), per RBI circular DPSS.CO.OD.No.1916/06.07.011/2018-19 dated March 7, 2019 - not just bank-owned ATMs. High-quality counterfeits replicating key security features may additionally trigger action under the Unlawful Activities (Prevention) Act, 1967.

What Are the Key Facts at a Glance?

Where Can You Read the RBI Master Direction?

This note is prepared with reference to the original government notification. Professionals are advised to read the primary source before initiating compliance action: Read the RBI Master Direction (RBI/DCM/2026-27/394)

Frequently Asked Questions

Who has authority to impound Counterfeit Notes?

(i) All banks (ii) Issue Offices of RBI

What must a bank do immediately after detecting a counterfeit note?

The note must be impounded on the spot (never returned to the tenderer or destroyed), stamped 'COUNTERFEIT NOTE', logged in the authentication register, and an acknowledgement receipt issued to the tenderer.

When does a bank need to file an FIR versus a consolidated monthly report?

If 5 or more counterfeit notes are detected in a single transaction, an FIR must be filed immediately. For up to 4 notes in a transaction, the case is included in the monthly consolidated report to the police.

How often must banks report counterfeit detections to RBI?

Monthly, by the 7th of the following month (including Nil reports), plus half-yearly status reports Within a fortnight from the end of the respective half-year ended March/September.

What happens if a bank fails to impound a counterfeit note?

It is treated as wilful involvement in circulating counterfeit currency and attracts a penalty; repeated or aggravated failures can trigger special investigation and suspension of Currency Chest operations.

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Legal Disclaimer: This note is prepared for general awareness and is not legal advice. For entity-specific applicability, consult your compliance officer or write to LexComply's advisory desk.