"We are trying to introduce plastic currency...We hope to introduce it on trial basis and if that succeeds it will be replicated in the entire country," he said during an interactive session with students of Business School of Kashmir University here.
He emphasised that plastic note is environment friendly because it has longer shelf-life than the paper notes.
Australia and Singapore have introduced plastic currencies.
With a view to elongating life of bank notes, particularly of lower denominations, it was decided by the RBI and government to introduce one billion pieces of Rs 10 notes in polymer/plastic on a trial basis in Kochi, Mysore, Jaipur, Bhubaneswar and Shimla.
The Finance Ministry had recently said that the review of policy of producing currency notes is a "dynamic and continuous process".
On the issue of fake currency, Subbarao said the problem is that whenever a fake currency is detected both the customer and the bank would be reluctant to put it on record.
"You want to get away because you don't want to get entangle with the police and bank want to get away because it means a lot of work for them. So, within the system there is disincentive for detecting fake currency," he said.
As the current norms are too draconian, he said, the RBI has convinced the Ministry of Home Affairs that FIRs should be filed only if the more than four fake notes are found with a person.