State-run Security Printing and Minting Corporation of India Limited (SPMCIL), which runs the mints, had in a directive yesterday said the "production of circulation coins is being stopped with immediate effect".
The notice added that the mints will continue to function during normal working hours "without any overtime for staff".
RBI sources said the calibration of coin production needs to take place from time to time based on an assessment of the coins in circulation and storage space. Right now, there is no space with banks or the Reserve Bank of India to store the coins.
The RBI picks up the coins from the mints for circulation in the market.
The banks have run out of storage space mainly because of the junked banknotes deposited with them following the notes ban in November 2016.
As the monetary authority, the RBI reviews the supply and usage of coins on a regular basis and informs the Department of Economic Affairs (DEA), which then communicates with SPMCIL.
"If such an exercise is not undertaken, there can be a backlash or push-back from the public, wherein it will stop accepting that denomination of coin of which there is an excess," a source said.
The SPMCIL notice also said that as on January 8, 2018, there was an inventory of 2,528 million pieces of circulation coins lying in the government mints.
The decision to halt coin production has not got down well with employees of mints as their pay is likely to get affected following the move.
There are around 1,400 employees at the Kolkata mint who agitated during the day condemning the move.