RBI Issues Master Direction on Note Sorting Machines
Yesterday, the Reserve Bank of India issued a new Master Direction on Note Sorting Machines while withdrawing previous circulars on the subject.
The Reserve Bank of India released a series of regulatory and administrative updates on October 1 and 2, 2026. On October 2, the central bank issued a Master Direction governing Note Sorting Machines under Sections 35A and 56 of the Banking Regulation Act, 1949. A day earlier, on October 1, the RBI published the Small Finance Banks Amendment Directions, 2026, and appointed Shri Sudhakar Malli as Executive Director, elevating him from his previous role as Chief General Manager-in-Charge of the Department of Supervision.
The Reserve Bank of India consolidated its regulatory framework for currency handling on Thursday, issuing a Master Direction on Note Sorting Machines that replaces a series of circulars dating back to 2009. The direction, issued under Sections 35A and 56 of the Banking Regulation Act, 1949, establishes a single reference point for banks on the authentication and fitness sorting parameters that machines must meet before notes can be recycled or reissued (RBI).
The new Master Direction withdraws all previous circulars on the subject from the date of its issuance. It codifies the revised fitness parameters introduced in July 2022 following the rollout of the new series banknotes, specifying that a fit note must be genuine, sufficiently clean for its denomination to be readily ascertained, and suitable for recycling, while an unfit note is one whose physical condition or phased-out series renders it unsuitable. All fitness parameters are to be evaluated individually, and a note must pass every parameter to be considered fit (RBI).
A day earlier, on Wednesday, the central bank amended the rules governing major shareholding in Small Finance Banks. The Reserve Bank of India (Small Finance Banks – Acquisition and Holding of Shares or Voting Rights) Amendment Directions, 2026, modify the Master Direction issued in November 2025. While prior approval remains mandatory for the initial acquisition of major shareholding, the amendment grants a one-time approval for subsequent acquisitions in the same banking company by mutual funds, insurance companies, and pension funds, provided they meet specific conditions (RBI).
The amendment inserts a new definition of "qualifying person" covering SEBI-registered mutual funds, PFRDA-registered pension funds, and IRDAI-registered insurance companies. It also clarifies that acquisition by a client may not be treated as indirect acquisition by its portfolio manager if the client is the registered owner entitled to exercise voting rights, the portfolio manager acts only as an advisor providing non-binding advice, and any voting rights exercised by the manager are based on a specific client mandate. The changes took immediate effect (RBI).
In a separate administrative move effective Wednesday, the RBI appointed Shri Sudhakar Malli as Executive Director. Malli, a career central banker with around three decades of experience, was previously Chief General Manager-in-Charge of the Department of Supervision. His supervisory background spans over two and a half decades across banks, non-banking financial companies, and co-operative banks, including around five years in overseas jurisdictions. As Executive Director, he will oversee the Department of Supervision (Supervisory Assessment) (RBI).
The central bank also extended its Benchmark Issuance Strategy for state government borrowing to six additional states and one Union Territory starting from the third quarter of the current financial year. Assam, Goa, Haryana, Mizoram, Nagaland, Tripura, and Jammu & Kashmir join the framework, which began as a pilot with nine states in the first quarter and expanded to nine more states and Delhi in the second quarter. The indicative calendar for market borrowings during October–December 2026 projects total issuance of ₹3,60,820 crore across participating states and UTs (RBI).
Money market data released by the RBI for Wednesday showed the overnight segment recording a volume of ₹6,71,792.20 crore at a weighted average rate of 5.10 per cent. The Triparty Repo segment accounted for the bulk of this at ₹4,79,348.35 crore and a rate of 5.07 per cent, while the Call Money segment saw ₹10,354.82 crore at 5.22 per cent. Market Repo volume stood at ₹1,76,419.98 crore at 5.15 per cent, and Repo in Corporate Bond at ₹5,669.05 crore at 5.25 per cent (RBI).
Liquidity operations on Wednesday resulted in a net absorption of ₹3,47,892 crore. The Standing Deposit Facility absorbed ₹2,68,919 crore at 5.00 per cent, while a one-day variable rate reverse repo operation absorbed ₹85,424 crore at 5.24 per cent. The Marginal Standing Facility injected ₹6,451 crore at 5.50 per cent (RBI).
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