The Reserve Bank of India has updated its Master Direction on Note Sorting Machines, allowing minor pencil markings on banknotes, like the ₹200 note, to no longer automatically disqualify them from circulation. This aims to improve the recycling of currency by enabling machines to pass notes with non-permanent pencil scribbles, provided they don't obscure the banknote's features. Conversely, rules for damaged notes, particularly those repaired with tape, have become more stringent.

The Reserve Bank of India has updated its Master Direction on Note Sorting Machines, allowing minor pencil markings on banknotes, like the ₹200 note, to no longer automatically disqualify them from circulation. This aims to improve the recycling of currency by enabling machines to pass notes with non-permanent pencil scribbles, provided they don't obscure the banknote's features. Conversely, rules for damaged notes, particularly those repaired with tape, have become more stringent.

The Reserve Bank of India has updated its Master Direction on Note Sorting Machines, allowing minor pencil markings on banknotes, like the ₹200 note, to no longer automatically disqualify them from circulation. This aims to improve the recycling of currency by enabling machines to pass notes with non-permanent pencil scribbles, provided they don't obscure the banknote's features. Conversely, rules for damaged notes, particularly those repaired with tape, have become more stringent.

Soon, shopkeepers and small banks will not have to refuse the ₹200 note you handed over just because it had some pencil scribbled on it. 

Under the older RBI rules published in 2022, automated cash-sorting equipment and bank staff treated all markings under rigid stain or graffiti rules. This meant that genuine banknotes bearing minor pencil notations were automatically branded as unfit for circulation.

The apex bank of India seems to have resolved this, and many other issues, in its updated Master Direction on Note Sorting Machines, which was published on October 2, 2026. The idea is to improve recycling of notes that are in circulation.

The Reserve Bank of India provided an explicit exemption for pencil markings. RBI clarified that "non-permanent markings such as pencil scribbles, which do not obscure the banknote subject to passing the criteria for reflectance and optical density, may not be classified as unfit".

When notes are fed into a high-speed sorting machine, optical sensors measure light bouncing off the paper. This "reflectance" also factored in marking. So, older machines were programmed to reject any note with written marks as damaged "graffiti" and taken out of circulation. 

The new rule, however, stated that banks should look past non-permanent pencil marks and ensure that readable, genuine notes remain in active circulation.

However, do note that this is only for non-permanent marks like those made with a pencil. For other things—like torn notes—the rules tightened.

The older rules meant machines rejected repaired notes based on tape surface area, width, or length. 

The latest directive makes it even more strict: any tape or glue layer measuring 50 microns or more in thickness will be flagged as suspect or rejected. The idea is to prevent extra-thick, taped bills from jamming ATMs or damaging cash-dispensing rollers.

So, what makes a note unfit for recycling? "An unfit note is a note that is not suitable for recycling because of its physical condition or belongs to a series that has been phased out by the Reserve Bank of India," as per the apex bank.

These were the major highlights in the latest notification by the RBI, which is also looking to standardise machine testing across all bank branches. The latest rules also do not mention the ₹2000 banknotes. 

The RBI also ordered that "going forward, banks shall only procure the BIS-certified Note Sorting Machines" under Indian Standard IS 18663: 2024. All older, uncertified machine models are mandated to be phased out by June 30, 2027. 

Banks failing to process cash through these updated sorting machines or failing to retire uncertified machine models by next June could face financial penalties of ₹5,000 per instance, leading up to ₹10,000 for repeated violations under currency chest penalty provisions.

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