RBI Rules on Counterfeit Notes serve as the definitive framework for handling fake currency in the Indian banking system. In this guide, we cover the 29 most expected questions derived from the official Master Directions. This expert mock test is specifically designed for RBI GRADE B, SBI PO, IBPS PO, and BANK PROMOTION EXAMS to help you master operational compliance and scoring concepts.
Why These RBI Rules on Counterfeit Notes Matter?
Exam Weightage: For RBI Grade B, this topic is crucial for Phase 2 (Finance & Management) regarding currency management. For Bank Promotion Exams, understanding these rules is mandatory for day-to-day branch operations and avoiding penalties.
Difficulty: Moderate to Hard (Operational & Legal).
Practice RBI Rules on Counterfeit Notes (Live Mock Test)
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RBI Rules on Counterfeit Notes – Best 29 Expected MCQs
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Under which legislative act does the Reserve Bank of India (RBI) issue Master Directions on Counterfeit Notes, citing powers under Section 35A and Section 56?
Explanation
Correct: B
The RBI issues these directions exercising powers under Section 35A and Section 56 of the Banking Regulation Act, 1949. Understanding this legal basis is the first step in mastering the RBI Rules on Counterfeit Notes.
The RBI issues these directions exercising powers under Section 35A and Section 56 of the Banking Regulation Act, 1949. Understanding this legal basis is the first step in mastering the RBI Rules on Counterfeit Notes.
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Which two entities are specified as having the authority to impound Counterfeit Notes?
Explanation
Correct: A
The authority to impound notes is exclusively given to all banks and the Issue Offices of RBI. This restriction is a core component of the RBI Rules on Counterfeit Notes to ensure centralized control.
The authority to impound notes is exclusively given to all banks and the Issue Offices of RBI. This restriction is a core component of the RBI Rules on Counterfeit Notes to ensure centralized control.
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What method is mandated for examining banknotes tendered over the counter or received as bulk tenders at the back office for authenticity?
Explanation
Correct: C
Banknotes must be examined for authenticity through machines. The RBI Rules on Counterfeit Notes mandate technology usage to improve FICN Detection Procedures and reduce human error.
Banknotes must be examined for authenticity through machines. The RBI Rules on Counterfeit Notes mandate technology usage to improve FICN Detection Procedures and reduce human error.
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Which of the following statements correctly describe the procedure for handling a note determined to be counterfeit?
1. The note must be stamped as “COUNTERFEIT NOTE”.
2. The note must be recorded under authentication in a separate register.
3. The note must be returned to the tenderer to prevent them from using it elsewhere.
4. The note must be destroyed by the branch manager immediately.
1. The note must be stamped as “COUNTERFEIT NOTE”.
2. The note must be recorded under authentication in a separate register.
3. The note must be returned to the tenderer to prevent them from using it elsewhere.
4. The note must be destroyed by the branch manager immediately.
Explanation
Correct: A
Notes must be stamped “COUNTERFEIT NOTE” and recorded in a separate register. Under RBI Rules on Counterfeit Notes, returning or destroying the note at the branch level is strictly prohibited.
Notes must be stamped “COUNTERFEIT NOTE” and recorded in a separate register. Under RBI Rules on Counterfeit Notes, returning or destroying the note at the branch level is strictly prohibited.
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If Counterfeit Notes are detected in a tender received over the counter, no credit for the value of those notes is to be given to the customer’s ……
Explanation
Correct: B
No credit is given to the customer’s account for detected fakes. This zero-tolerance policy is a financial safeguard defined within the RBI Rules on Counterfeit Notes.
No credit is given to the customer’s account for detected fakes. This zero-tolerance policy is a financial safeguard defined within the RBI Rules on Counterfeit Notes.
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Which of the following statements regarding the acknowledgement receipt for a counterfeit note are correct?
1. An acknowledgement receipt in the prescribed format (Annex II) must be issued to the tenderer.
2. The receipt is to be issued even if the tenderer is unwilling to countersign it.
3. The receipt must be kept in running serial number.
4. The receipt must be authenticated by the cashier.
1. An acknowledgement receipt in the prescribed format (Annex II) must be issued to the tenderer.
2. The receipt is to be issued even if the tenderer is unwilling to countersign it.
3. The receipt must be kept in running serial number.
4. The receipt must be authenticated by the cashier.
Explanation
Correct: D
All statements are correct. The RBI Rules on Counterfeit Notes dictate that an Annex II receipt is mandatory, aligning with the broader Master Direction on Counterfeit Currency to ensure audit trails.
All statements are correct. The RBI Rules on Counterfeit Notes dictate that an Annex II receipt is mandatory, aligning with the broader Master Direction on Counterfeit Currency to ensure audit trails.
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Which of the following statements about counterfeit note reporting are correct?
1. If 3 notes are detected, an FIR must be filed immediately.
2. If 6 notes are detected, they are forwarded immediately with an FIR.
3. The Nodal Bank Officer is responsible for forwarding the notes to the police.
4. A copy of all reports (consolidated or FIR) is sent to the bank’s FNV Cell.
1. If 3 notes are detected, an FIR must be filed immediately.
2. If 6 notes are detected, they are forwarded immediately with an FIR.
3. The Nodal Bank Officer is responsible for forwarding the notes to the police.
4. A copy of all reports (consolidated or FIR) is sent to the bank’s FNV Cell.
Explanation
Correct: B
FIRs are immediate only for 5 or more pieces; fewer require a monthly report. The RBI Rules on Counterfeit Notes assign these specific reporting thresholds to the Nodal Bank Officer.
FIRs are immediate only for 5 or more pieces; fewer require a monthly report. The RBI Rules on Counterfeit Notes assign these specific reporting thresholds to the Nodal Bank Officer.
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To help identify people abetting the circulation of Counterfeit Notes, what are banks advised to do?
Explanation
Correct: A
Banks are advised to cover banking halls and counters with CCTV surveillance. This security measure is recommended by the RBI Rules on Counterfeit Notes to aid law enforcement.
Banks are advised to cover banking halls and counters with CCTV surveillance. This security measure is recommended by the RBI Rules on Counterfeit Notes to aid law enforcement.
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The definition of ‘counterfeiting’ in which legislation also covers currency notes issued by a foreign government authority?
Explanation
Correct: C
The Bharatiya Nyaya Sanhita, 2023 covers foreign currency counterfeiting. While not directly part of the banking act, the RBI Rules on Counterfeit Notes reference this for legal definitions and Banking Regulation Act Compliance.
The Bharatiya Nyaya Sanhita, 2023 covers foreign currency counterfeiting. While not directly part of the banking act, the RBI Rules on Counterfeit Notes reference this for legal definitions and Banking Regulation Act Compliance.
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If suspected foreign currency notes are received for opinion from police or government agencies, what is the prescribed course of action?
Explanation
Correct: B
Banks must advise forwarding such cases to the Interpol Wing of the CBI. The RBI Rules on Counterfeit Notes clarify the jurisdictional procedure for foreign currency.
Banks must advise forwarding such cases to the Interpol Wing of the CBI. The RBI Rules on Counterfeit Notes clarify the jurisdictional procedure for foreign currency.
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Activity of production, smuggling or circulation of what specific item has been brought under the ambit of the Unlawful Activities (Prevention) Act (UAPA), 1967?
Explanation
Correct: C
“High Quality Counterfeit Indian Notes” fall under UAPA, 1967. The RBI Rules on Counterfeit Notes highlight this to emphasize the severity of the crime.
“High Quality Counterfeit Indian Notes” fall under UAPA, 1967. The RBI Rules on Counterfeit Notes highlight this to emphasize the severity of the crime.
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Who must each bank designate, on a district-wise basis, to serve as the contact point for all Counterfeit Note detection related activities?
Explanation
Correct: C
A district-wise Nodal Bank Officer is mandatory. The RBI Rules on Counterfeit Notes establish this role to streamline communication with the Forged Note Vigilance Cell and police.
A district-wise Nodal Bank Officer is mandatory. The RBI Rules on Counterfeit Notes establish this role to streamline communication with the Forged Note Vigilance Cell and police.
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Which of the following statements regarding the machine processing of banknotes are correct?
1. Banknotes in denominations of ₹100 and above must not be put into re-circulation without being machine processed for authenticity.
2. This instruction is applicable only to large bank branches with high daily cash receipts.
3. This instruction is applicable to all bank branches, irrespective of the volume of daily cash receipt.
1. Banknotes in denominations of ₹100 and above must not be put into re-circulation without being machine processed for authenticity.
2. This instruction is applicable only to large bank branches with high daily cash receipts.
3. This instruction is applicable to all bank branches, irrespective of the volume of daily cash receipt.
Explanation
Correct: B
Notes of ₹100+ must be machine-processed at all branches. The RBI Rules on Counterfeit Notes allow no exceptions based on branch size or volume.
Notes of ₹100+ must be machine-processed at all branches. The RBI Rules on Counterfeit Notes allow no exceptions based on branch size or volume.
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Dispensation of Counterfeit Notes through …… would be construed as an attempt to circulate the Counterfeit Notes by the bank concerned.
Explanation
Correct: A
Dispensing fakes via ATMs is treated as an attempt to circulate by the bank. The RBI Rules on Counterfeit Notes impose strict liability on banks for ATM quality.
Dispensing fakes via ATMs is treated as an attempt to circulate by the bank. The RBI Rules on Counterfeit Notes impose strict liability on banks for ATM quality.
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Detection of Counterfeit Notes in what type of remittances is liable to be construed as wilful involvement of the chest branches concerned in circulating Counterfeit Notes?
Explanation
Correct: A
Detection in Chest remittances suggests wilful involvement. The RBI Rules on Counterfeit Notes penalize chest branches heavily to ensure the integrity of the currency distribution system.
Detection in Chest remittances suggests wilful involvement. The RBI Rules on Counterfeit Notes penalize chest branches heavily to ensure the integrity of the currency distribution system.
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What equipment are all bank branches or identified back offices required to be equipped with to facilitate the detection of Counterfeit Notes?
1. Ultra-violet lamps
2. Note Sorting / Authentication Machines
3. At least one note counting machine for public use
4. Biometric scanners for tenderers
1. Ultra-violet lamps
2. Note Sorting / Authentication Machines
3. At least one note counting machine for public use
4. Biometric scanners for tenderers
Explanation
Correct: A
Branches must have UV lamps and Authentication Machines. The RBI Rules on Counterfeit Notes mandate this hardware to standardize detection capabilities.
Branches must have UV lamps and Authentication Machines. The RBI Rules on Counterfeit Notes mandate this hardware to standardize detection capabilities.
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What specific type of equipment must all currency chest branches be equipped with?
Explanation
Correct: B
Currency chests require verification, processing, and sorting machines. This is a critical infrastructure requirement under the RBI Rules on Counterfeit Notes.
Currency chests require verification, processing, and sorting machines. This is a critical infrastructure requirement under the RBI Rules on Counterfeit Notes.
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Note Sorting / Authentication Machines used by banks must conform to the guidelines prescribed by the RBI and also the Indian Standards duly certified by the ……
Explanation
Correct: A
Machines must be certified by the Bureau of Indian Standards (BIS). The RBI Rules on Counterfeit Notes insist on BIS standards to ensure reliability.
Machines must be certified by the Bureau of Indian Standards (BIS). The RBI Rules on Counterfeit Notes insist on BIS standards to ensure reliability.
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Where is each bank required to establish a Forged Note Vigilance (FNV) Cell?
Explanation
Correct: B
The FNV Cell must be established at the Head Office. The RBI Rules on Counterfeit Notes centralize vigilance operations through this specific cell.
The FNV Cell must be established at the Head Office. The RBI Rules on Counterfeit Notes centralize vigilance operations through this specific cell.
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Which of the following statements regarding the functions of a bank’s Forged Note Vigilance (FNV) Cell are correct?
1. It is responsible for disseminating RBI instructions on Counterfeit Notes to all branches.
2. It is responsible for ensuring the operation of Note Sorting Machines at all currency chests and back offices.
3. It is responsible for directly prosecuting individuals who tender Counterfeit Notes.
4. It conducts periodic surprise checks at currency chests where shortages or Counterfeit Notes are detected.
1. It is responsible for disseminating RBI instructions on Counterfeit Notes to all branches.
2. It is responsible for ensuring the operation of Note Sorting Machines at all currency chests and back offices.
3. It is responsible for directly prosecuting individuals who tender Counterfeit Notes.
4. It conducts periodic surprise checks at currency chests where shortages or Counterfeit Notes are detected.
Explanation
Correct: A
The FNV Cell disseminates info and conducts surprise checks but does not prosecute directly. The RBI Rules on Counterfeit Notes define these monitoring functions clearly.
The FNV Cell disseminates info and conducts surprise checks but does not prosecute directly. The RBI Rules on Counterfeit Notes define these monitoring functions clearly.
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Which of the following statements about the reporting and administrative duties of a bank’s Forged Note Vigilance (FNV) Cell are correct?
1. It must send a monthly data report (or “Nil” report) on detected notes to the RBI Issue Office.
2. It must submit a half-yearly status report to the Chief General Manager, Department of Currency Management, RBI.
3. It must furnish the particulars of its address to the RBI by the 15th of April, every year.
4. It must send an immediate report to the local police for every detected note.
1. It must send a monthly data report (or “Nil” report) on detected notes to the RBI Issue Office.
2. It must submit a half-yearly status report to the Chief General Manager, Department of Currency Management, RBI.
3. It must furnish the particulars of its address to the RBI by the 15th of April, every year.
4. It must send an immediate report to the local police for every detected note.
Explanation
Correct: B
Reporting includes monthly data and half-yearly status reports. The RBI Rules on Counterfeit Notes require these specific periodic updates to maintain compliance.
Reporting includes monthly data and half-yearly status reports. The RBI Rules on Counterfeit Notes require these specific periodic updates to maintain compliance.
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Under the Prevention of Money Laundering (Maintenance of Records) Amendment Rules, 2013, to whom must Principal Officers of banks report information on cash transactions where Counterfeit Notes have been detected?
Explanation
Correct: D
Reports must go to the Financial Intelligence Unit-India (FIU-IND). This aligns the RBI Rules on Counterfeit Notes with anti-money laundering frameworks.
Reports must go to the Financial Intelligence Unit-India (FIU-IND). This aligns the RBI Rules on Counterfeit Notes with anti-money laundering frameworks.
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Which of the following statements regarding penalties for counterfeit notes detected in soiled note remittances are correct?
1. For denominations of ₹5, ₹10, and ₹20, the penalty is the recovery of loss to the extent of the notional value.
2. For the denomination of ₹50, the penalty is 50% of the notional value, in addition to the recovery of the notional value.
3. For denominations of ₹100 and above, if the CPM is 20 or more, the penalty is 200% of the notional value, in addition to the recovery of the notional value.
1. For denominations of ₹5, ₹10, and ₹20, the penalty is the recovery of loss to the extent of the notional value.
2. For the denomination of ₹50, the penalty is 50% of the notional value, in addition to the recovery of the notional value.
3. For denominations of ₹100 and above, if the CPM is 20 or more, the penalty is 200% of the notional value, in addition to the recovery of the notional value.
Explanation
Correct: D
The penalties are graded by denomination and CPM. The RBI Rules on Counterfeit Notes utilize these financial deterrents to ensure banks filter out fakes before remittance.
The penalties are graded by denomination and CPM. The RBI Rules on Counterfeit Notes utilize these financial deterrents to ensure banks filter out fakes before remittance.
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How is ‘CPM’ (counterfeit notes per million) calculated for a soiled note remittance?
Explanation
Correct: B
CPM focuses specifically on denominations of ₹100 and above. The RBI Rules on Counterfeit Notes use this formula to calculate the density of fakes in high-value remittances.
CPM focuses specifically on denominations of ₹100 and above. The RBI Rules on Counterfeit Notes use this formula to calculate the density of fakes in high-value remittances.
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What are the correct penalties for counterfeit notes detected in a currency chest (CC) balance during an RBI inspection?
1. For ₹10 notes: Recovery of loss to the extent of notional value.
2. For ₹50 notes: A penalty at 50% of notional value, plus recovery of notional value.
3. For ₹100 notes: A graded penalty based on CPM.
4. For ₹100 notes: A penalty at 200% of notional value, plus recovery of notional value.
1. For ₹10 notes: Recovery of loss to the extent of notional value.
2. For ₹50 notes: A penalty at 50% of notional value, plus recovery of notional value.
3. For ₹100 notes: A graded penalty based on CPM.
4. For ₹100 notes: A penalty at 200% of notional value, plus recovery of notional value.
Explanation
Correct: A
During CC inspections, the penalty is a flat 200% for ₹100+ notes, not graded by CPM. The RBI Rules on Counterfeit Notes differ here compared to soiled note remittances.
During CC inspections, the penalty is a flat 200% for ₹100+ notes, not graded by CPM. The RBI Rules on Counterfeit Notes differ here compared to soiled note remittances.
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Which of the following statements regarding the monetary penalty for counterfeit notes are correct?
1. A penalty of ₹10,000 per instance is imposed for counterfeit notes detected in ATM dispensations.
2. A penalty of ₹10,000 per instance is imposed for wilful non-impounding of a detected counterfeit note.
3. The penalty for ATM dispensation also applies to White Label ATM Operators.
1. A penalty of ₹10,000 per instance is imposed for counterfeit notes detected in ATM dispensations.
2. A penalty of ₹10,000 per instance is imposed for wilful non-impounding of a detected counterfeit note.
3. The penalty for ATM dispensation also applies to White Label ATM Operators.
Explanation
Correct: D
A ₹10,000 penalty applies to ATM dispensation and non-impounding. The RBI Rules on Counterfeit Notes enforce this strict fine to ensure accountability.
A ₹10,000 penalty applies to ATM dispensation and non-impounding. The RBI Rules on Counterfeit Notes enforce this strict fine to ensure accountability.
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Which of the following statements regarding the preservation and disposal of Counterfeit Notes received back from police or courts are correct?
1. Notes must be preserved in the safe custody of the bank, not destroyed.
2. Notes must be verified by the Officer-in-Charge on a half-yearly basis (March 31st and September 30th).
3. Notes are preserved for three years from the date of receipt, or for three years after the conclusion of a court case, whichever is later.
4. After the preservation period, notes are sent to the concerned Issue Office of RBI.
1. Notes must be preserved in the safe custody of the bank, not destroyed.
2. Notes must be verified by the Officer-in-Charge on a half-yearly basis (March 31st and September 30th).
3. Notes are preserved for three years from the date of receipt, or for three years after the conclusion of a court case, whichever is later.
4. After the preservation period, notes are sent to the concerned Issue Office of RBI.
Explanation
Correct: D
Notes must be preserved for 3 years or until case conclusion. The RBI Rules on Counterfeit Notes outline this custody chain to support legal evidence requirements.
Notes must be preserved for 3 years or until case conclusion. The RBI Rules on Counterfeit Notes outline this custody chain to support legal evidence requirements.
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Which of the following statements regarding bank staff training for Counterfeit Notes are correct?
1. Controlling offices must organize training for all bank personnel who handle cash.
2. Training must cover the detection of Counterfeit Notes.
3. Training must cover the impounding of Counterfeit Notes.
4. Training must cover the reporting of Counterfeit Notes.
1. Controlling offices must organize training for all bank personnel who handle cash.
2. Training must cover the detection of Counterfeit Notes.
3. Training must cover the impounding of Counterfeit Notes.
4. Training must cover the reporting of Counterfeit Notes.
Explanation
Correct: D
Training must cover detection, impounding, and reporting. The RBI Rules on Counterfeit Notes make comprehensive staff education mandatory.
Training must cover detection, impounding, and reporting. The RBI Rules on Counterfeit Notes make comprehensive staff education mandatory.
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Information on the design and security features of all banknotes is provided to banks, which they may display prominently at branches for public information.
Explanation
Correct: A
True, banks are encouraged to display security features. The RBI Rules on Counterfeit Notes promote public awareness as a first line of defense.
True, banks are encouraged to display security features. The RBI Rules on Counterfeit Notes promote public awareness as a first line of defense.
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⚡ Quick Revision: Key Facts for RBI Rules on Counterfeit Notes
Impounding Authority: Only Banks and RBI Issue Offices can impound notes; they cannot return them to the customer.
Police Reporting: FIR is mandatory only for detection of 5 or more counterfeit pieces in a single transaction.
Machine Processing: Notes of ₹100 and above must be machine-processed before re-circulation.
FNV Cell: Every bank must have a Forged Note Vigilance Cell at its Head Office.
ATM Penalty: Banks face a ₹10,000 penalty per instance for dispensing fakes via ATMs.
Retention Period: Counterfeit notes returned from courts must be preserved for 3 years.
❓ Frequently Asked Questions
Why are RBI Rules on Counterfeit Notes critical for Bank Promotion Exams?
These rules govern daily cash operations. Knowledge of impounding procedures and penalties is essential for operational compliance questions in promotion exams.
What is the penalty for not impounding a fake note?
According to RBI Rules on Counterfeit Notes, wilful non-impounding attracts a penalty of ₹10,000 per instance.
Are White Label ATMs covered under these rules?
Yes, the penalties for dispensing counterfeit notes apply equally to White Label ATM Operators.