Government is likely to amend the Reserve Bank of India Act to extinguish the validity of INR 500 and 1000 printed before November 9 and a reference to this effect would be made in the upcoming Budget.
As part of the demonetisation process, there would be a law to make these notes invalid and it can be made effective from March 31, sources said.
In 1978, when the currency was banned, the law to annul the validity came ahead.
This time the government acted under 26 (2).
As per RBI Act Section 26 (2), the central government, on the recommendation of the Central Board of RBI, may by notification in the Gazette of India, declare that, with effect from such date as may be specified in the notification, any series of bank notes of any denomination shall cease to be legal tender.
Banks have received Rs. 12 lakh crore demonetised currency notes as against Rs. 15.5 lakh crore. The government expects Rs. 13 lakh crore to come back to banking system.
Higher dividend from the RBI due to cancellation of INR 500/1000 may not be applicable until the RBI law is amended.
RBI has issued currency notes worth over Rs. 4.27 lakh crore to public through banks and ATMs following the demonetisation of old high value bills.
