The Reserve Bank of India has reported significant progress in the withdrawal of ₹2000 denomination banknotes, with 98.41% of the high-value currency successfully returned since the announcement in May 2023. The central bank's latest update demonstrates the effectiveness of its systematic approach to removing these banknotes from circulation.

Withdrawal Progress and Current Status

The RBI's data reveals substantial reduction in ₹2000 banknotes circulation over the past period:

The withdrawal process began when the RBI announced the decision to remove ₹2000 denomination banknotes from circulation on May 19, 2023. Since then, the total value of these banknotes in circulation has declined dramatically from ₹3.56 lakh crore to ₹5,669 crore at the close of business on December 31, 2025.

Multiple Return Channels Available

The RBI has established comprehensive facilities to ensure smooth return of the banknotes through various channels:

Bank Branch Network

A facility for deposit and exchange of ₹2000 banknotes was available at all bank branches across the country until October 7, 2023. This widespread network provided convenient access for the public to return their banknotes.

RBI Issue Offices

From October 9, 2023, the RBI's 19 Issue Offices began accepting ₹2000 banknotes directly from individuals and entities for deposit into their bank accounts. This additional channel ensures continued accessibility for banknote returns.

India Post Services

Members of the public can send ₹2000 banknotes through India Post from any post office within the country to any of the RBI Issue Offices for credit to their bank accounts. This service provides a convenient option for those unable to visit bank branches or RBI offices directly.

Legal Tender Status Maintained

The RBI emphasized that despite the withdrawal process, the ₹2000 banknotes continue to be legal tender. This means the remaining banknotes in circulation retain their validity and can still be used for transactions or exchanged through the available channels.

The successful return rate of 98.41% demonstrates public cooperation with the RBI's currency management policy and the effectiveness of the multiple return mechanisms established by the central bank.

India's household borrowing has climbed to 41.3% of GDP, a level that financial experts consider manageable for now, though they warn that reckless lending practices could transform this credit expansion into a significant risk for the country's financial system. The assessment comes as new data reveals changing patterns in how Indian households access and utilize credit.

Current Debt Levels and Comparative Analysis

According to the Reserve Bank of India's Financial Stability Report, household debt reached 41.3% of GDP as of end-March 2025, representing an increase from the five-year average of approximately 38%. Despite this uptick, India maintains a relatively favorable position compared to several emerging market peers.

Former State Bank of India Chairman Dinesh Khara characterized this trend as a "paradigm shift" in retail credit access and usage patterns. He emphasized that rising debt levels need not be problematic provided repayment remains timely, stating that "so long as the debt is going up, it is not as much of a challenge if it can be repaid in good time."

Composition of Household Borrowing

The structure of household loans reveals significant shifts in borrowing purposes. Current data shows that consumption loans now dominate household borrowing patterns, raising questions about the underlying drivers of this credit demand.

Consumption loans encompass personal loans, credit cards, and consumer durable financing. Asset creation includes housing and vehicle loans, while productive purposes cover education, agriculture, and small business financing. This distribution has sparked debate about whether borrowing stems from income confidence or income stress.

Expert Perspectives on Credit Growth

Bank of Baroda Chief Economist Madan Sabnavis defended the rise in consumption credit, drawing parallels with developed economies where consumer leverage has supported economic growth. "I don't think it's anything odd to see retail loans increasing, personal loans going up even for consumption purposes," he explained, noting that "consumption is one of the links to overall GDP growth."

Sabnavis argued that with high inflation and slower income growth affecting spending patterns, borrowing provides households access to consumption that can maintain economic momentum. However, he cautioned against repeating historical mistakes of overextending credit in rapidly growing segments.

Risk Factors and Regulatory Concerns

Despite the manageable overall picture, several risk factors warrant attention. Unsecured loans continue to account for 53% of total retail slippages, even after regulatory tightening measures, with private sector banks contributing a substantial share of these defaults.

Khara stressed that aggregate numbers may not reveal the complete picture, emphasizing the need to examine stress at institutional levels. He highlighted that underwriting models require closer scrutiny in cases where slippages are high, ensuring proper assessment of borrower repayment capacity.

Sabnavis identified particular vulnerabilities among consumption borrowers, noting that approximately one-third fall below the prime category. These borrowers face heightened risk if job conditions deteriorate or interest rates increase. He emphasized greater caution when extending credit to new-to-bank borrowers, where banks have limited visibility into repayment behavior.

Financial Stability Outlook

The broader financial stability indicators provide reassurance despite localized concerns. Net household financial savings have recovered to 7.60% of GDP in FY25 from 5.20% in FY24, though levels remain below pre-pandemic benchmarks.

RBI stress tests suggest positive trends ahead, projecting asset quality improvement from 2.20% to 1.90% by March 2027 under baseline scenarios. Capital levels are expected to remain robust across banks, NBFCs, mutual funds, and insurance companies.

Both experts concluded that India's rising household debt need not be alarming if lending quality is maintained. As Sabnavis summarized, "Banks have to be cautious and regulators have to be alert at all times." The sustainability of current borrowing levels will ultimately depend on maintaining prudent lending standards and ensuring borrowers' repayment capacity aligns with their debt obligations.