RBI Master Direction on Note Sorting Machines: BIS Certification Mandate, Authentication Requirements and Fitness Sorting Standards

Overview

The Reserve Bank of India issued the Master Direction on Note Sorting Machines dated October 02, 2026, consolidating all existing instructions governing the operation, authentication capability and fitness sorting parameters of Note Sorting Machines (NSMs) used by banks. The direction was issued in exercise of powers vested under Section 35A and Section 56 of the Banking Regulation Act, 1949, and supersedes the entire body of earlier circulars on this subject with effect from the date of its issuance.

The Master Direction serves as a single reference document for banks, bringing together requirements relating to banknote authentication, fitness classification, machine calibration, BIS certification mandates and phasing out of discontinued NSM models.

The Master Direction has been issued under:

  • Section 35A of the Banking Regulation Act, 1949
  • Section 56 of the Banking Regulation Act, 1949

The RBI, being satisfied that the issuance of consolidated directions is necessary and expedient in public interest, has brought all operational instructions relating to NSMs under one unified framework. All banks — whether processing banknotes directly through their own staff or indirectly through agents — are covered under this direction.

Background and Regulatory History

The regulatory journey of NSM guidelines began in 2009 and evolved through several circulars:

  1. Circular DCM. No. Cir. NPD.3161/09.39.00 (Policy)/2009-2010 dated November 19, 2009 — Initial guidelines on installation of NSMs, requiring conformity with RBI-prescribed standards.
  2. Circular DCM(R&D)No.G-26/18.00.14/2009-10 dated May 11, 2010 — Final guidelines on Note Authentication and Fitness Sorting Parameters, issued after stakeholder consultations.
  3. Circular DCM(NPD)No. S488/18.00.14/2022-23 dated July 01, 2022 — Revised parameters in the context of new series banknotes introduced subsequently.
  4. Circular DCM (NPD) No.S2193/09.45.000/2024-25 dated October 30, 2024 — Introduction of BIS standards for NSMs.
  5. Circular DCM (NPD) No.S287/18.00.014/2025-26 dated April 24, 2025 — Revised implementation timelines for BIS standards.

All five circulars listed above stand withdrawn with effect from October 02, 2026, the date of issuance of the Master Direction.

What Constitutes a Fit and Unfit Banknote

Fit Notes

A banknote is classified as fit when it is:

  • Genuine in its authentication features
  • Sufficiently clean for its denomination to be easily identified
  • Suitable for recycling back into circulation

Unfit Notes

A banknote is classified as unfit when:

  • Its physical condition makes it unsuitable for recycling, or
  • It belongs to a series that has been phased out by the RBI

A note must pass all fitness parameters individually to qualify as fit for reissue. Failure on any single parameter renders the note unfit.

Authenticity Check: Prerequisite for Fitness Sorting

Authentication is a mandatory precondition before fitness sorting is performed. The machines must: