What happens when a bank detects counterfeit currency?
The bank must not credit counterfeit notes to the customer, return them to the tenderer or destroy them. It must impound and record them and issue the prescribed acknowledgement. The police-reporting route depends on the number of counterfeit pieces in a single transaction: up to four follow the monthly consolidated route, while five or more require immediate forwarding and FIR action by the Nodal Bank Officer. The boundary is a piece count, not a rupee-value threshold.
Current official framework
The RBI Master Direction on Counterfeit Notes – Detection, Reporting and Monitoring was issued on 1 April 2026 and is displayed as updated on 1 September 2026. This guide uses that updated text as checked on 26 October 2026, particularly paragraphs 2–5. It addresses bank handling and a business depositor’s reconciliation evidence; it is not a finding that an innocent tenderer knowingly committed an offence.
Separate the deposit, the counterfeit value and the evidence
Paragraph 2.2 denies account credit for counterfeit notes detected in a tender, whether at the counter or at the back office/currency chest. Paragraph 2.3 bars return to the tenderer or destruction by the bank branch. Paragraph 3 calls for stamping and impounding in the prescribed format and an authenticated separate-register entry. Do not treat a non-credit decision as permission to quietly hand the note back.
Under paragraph 4, the acknowledgement has a running serial number and is authenticated by the cashier and tenderer; it must still be issued where the tenderer is unwilling to countersign. Match it to the deposit slip, bank credit, denomination count and cashbook. For a business, a bank-credit shortfall supported by an impounding receipt requires a documented accounting investigation, not automatic reclassification as a bank charge or output tax. Recovery from a supplier or employee, if any, needs its own factual and legal basis.
Count pieces within each actual transaction
Paragraph 5.1 requires a month-end consolidated report in Annex III by the Nodal Bank Officer, with the counterfeit notes, to the police for cases up to four pieces in a single transaction. Paragraph 5.2 requires immediate forwarding for investigation and FIR in Annex IV where a single transaction has five or more. A low denomination does not remove the immediate-reporting condition, and a high denomination does not turn one counterfeit piece into five.
Preserve genuine transaction boundaries. Separate transactions with three and two pieces should remain identifiable in the monthly reporting data; adding their counts for management information does not turn them into a single five-piece transaction. Conversely, do not split one actual tender into artificial entries to evade the immediate route. The six illustrations assume the actual transaction boundaries and counterfeit determination are already established.
Complete the reporting chain
Paragraph 5.3 requires copies of the consolidated report or FIR to reach the bank’s head-office Forged Note Vigilance Cell. Paragraph 5.4 requires acknowledgement from the police and follow-up, including receipt acknowledgement where notes are sent by insured post. A dispatch number by itself is not the complete receipt trail. Reconcile each impounded note from its initial register entry through the reporting package and police acknowledgement.
For the depositor, keep the evidence needed to explain the account-credit difference while controlling access to personal and investigation information. Do not publish customer identity or note serial numbers in an open reconciliation report. Staff should follow current bank procedures and official security-feature training; suspect currency should not be recirculated as a way of recovering a loss.
What the calculations do and do not show
The examples compute note counts and non-credit face amounts. They do not value a claim against the bank, promise reimbursement, determine criminal responsibility or prescribe journal entries for every business. Those outcomes depend on the actual facts and applicable law.
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Four ₹500 notes
A single ₹20,000 tender contains four counterfeit ₹500 pieces. Non-credit face amount is 4 × ₹500 = ₹2,000; assuming all other notes are genuine, creditable cash is ₹18,000. Four pieces follow the paragraph 5.1 route, with impounding and acknowledgement still mandatory.
Illustrative example 2: Five low-denomination notes
A single tender contains five counterfeit ₹100 notes: ₹500 face amount. Despite being lower in value than the first example, five pieces meet the paragraph 5.2 immediate-forwarding/FIR boundary.
Illustrative example 3: Mixed denominations in one tender
Three counterfeit ₹500 notes and two counterfeit ₹200 notes in the same transaction total five pieces and ₹1,900. The piece count, not the mixed denomination total, determines the immediate route.
Illustrative example 4: Two genuine separate transactions
Transaction A has three counterfeit pieces and transaction B two. There are five pieces across the management total, but each actual transaction is below five. On the stipulated separate facts, both remain in the up-to-four transaction category; the monthly report preserves both transaction records.
Illustrative example 5: Back-office discovery
A ₹50,000 cash tender is initially under verification. Back-office checking identifies two counterfeit ₹500 notes. Non-credit face value is ₹1,000 and genuine cash is ₹49,000. Back-office detection does not create an exception to paragraph 2.2.
Illustrative example 6: Impounding-register reconciliation
The month’s up-to-four cases account for seven pieces, and a separate immediate-FIR case accounts for six. The control total is thirteen pieces. A police-forwarding schedule showing twelve leaves one piece to reconcile; do not fix it by changing the original count without evidence.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify actual transaction | Tender, date and denomination count. |
| 2 | Follow authentication procedure | Bank determination and trained-staff records. |
| 3 | Exclude counterfeit credit | Deposit amount and genuine-cash reconciliation. |
| 4 | Impound rather than return | Prescribed stamping and authenticated note register. |
| 5 | Issue acknowledgement | Annex II receipt and running serial reference. |
| 6 | Classify the piece count | Actual single-transaction count, not value or artificial splitting. |
| 7 | Use the correct police route | Annex III monthly or Annex IV immediate FIR case. |
| 8 | Send FNV Cell copy | Head-office reporting trail. |
| 9 | Obtain police acknowledgement | Receipt and follow-up evidence for forwarded notes. |
| 10 | Close the custody reconciliation | Register, reports, dispatch/receipt and unresolved-count exceptions. |
Sixteen practitioner FAQs
1. Is the boundary based on ₹500 denomination?
No. The reporting threshold counts counterfeit pieces in one transaction, regardless of denomination.
2. Does one high-value counterfeit note require the five-piece route?
Not solely because of its value. Apply the actual piece count and the current directions.
3. What happens at exactly four pieces?
The up-to-four monthly consolidated route applies, with the other impounding and receipt duties intact.
4. What happens at exactly five pieces?
Paragraph 5.2’s immediate-forwarding and FIR procedure applies.
5. Can the bank return a counterfeit note to let the customer replace it?
No. Paragraph 2.3 prohibits return to the tenderer or destruction by the branch.
6. Is account credit allowed if detection is at the back office?
No. Paragraph 2.2 expressly covers counter and back-office/currency-chest detection.
7. Must an acknowledgement be issued?
Yes, in the prescribed format after stamping, with a running serial number.
8. What if the tenderer refuses to countersign?
Paragraph 4 still requires the bank to issue the receipt.
9. Does impounding prove knowing wrongdoing by the depositor?
No. It is the prescribed handling process; culpability requires its own factual and legal assessment.
10. Can separate real transactions be added to create one threshold event?
Preserve the actual single-transaction basis. Management totals do not erase transaction boundaries.
11. Can one tender be split to avoid reporting?
No. Do not manufacture separate boundaries for one actual transaction.
12. Who forwards the police report?
The directions identify the Nodal Bank Officer for the prescribed police-reporting procedures.
13. What must reach the head-office FNV Cell?
Copies of the monthly consolidated report or FIR under paragraph 5.3.
14. Is dispatch evidence enough to close police forwarding?
No. Paragraph 5.4 requires police acknowledgement and proper follow-up.
15. Should a business call the non-credit amount a bank fee?
Not automatically. Investigate and support its accounting treatment from the actual facts and documents.
16. What makes the monthly reconciliation reliable?
A note-level custody trail that agrees transaction counts, impounding receipts, the two reporting routes and police acknowledgements.
Conclusion
RBI’s current directions distinguish up to four counterfeit notes in one transaction from five or more. Neither category may be credited, returned or destroyed; preserve the receipt, impounding record and reporting trail.