Prime Minister Narendra Modi scrapped 1,000 (Â£11.8) and 500 notes in a surprise move last week as part of a tax evasion and corruption crackdown.
People have a limited time to exchange the notes for smaller denominations, but will have their fingers marked.
The government wants to stop holders of "black cash" offloading their old rupee notes in small tranches.
Authorities often use indelible ink to stop people from voting more than once in Indian elections.
People were told they should deposit their high denomination notes in the banks, or could only exchange up to 4,500 rupees, ($65; Â£52) for smaller notes.
But to clamp down on holders of unlawfully held or untaxed cash, depositors can only make such transactions once and so the banks are using the ink to prevent them from making multiple deposits.
India scraps 1,000 rupee notes overnight
Chaos at banks over India money ban
Supporters say it is a handy way for the Indian government to tackle corruption.
The finance ministry suspects "unscrupulous" people have been trying to get around the crackdown by sending proxies to exchange their banned rupee notes.
The withdrawal of the big notes is aimed at 'black money' and targets people who have been dodging taxes by holding stockpiles of cash.
While the authorities say people will not be allowed another cash swap, critics are wondering what happens if the ink wears off?
During elections, people have used chemicals to remove the ink from their fingers so that they can vote more than once.
The government's ban on big bank notes first received widespread approval because less than 3% of Indians file tax returns.
But the switch has caused chaos with tens of millions of Indians queuing for hours to exchange and withdraw cash.
The government was ill-prepared for the ban which suddenly put 86% of the country's money supply out of circulation.
Many businesses only accept cash and hundreds of millions of Indians do not have bank accounts and only use cash.

The 21-year-old has been playing in the Glasgow first team since 2012 and made his senior international debut the following year.
Gray regularly partners brother and former Warriors lock Richie in Scotland's second row.
"I'm very happy to be staying at Glasgow," the younger Gray told Glasgow's website.
"It's my home club and I'm just glad I've had the opportunity to sign.
"It's been a a fantastic few years development for me. When I was younger I always had the ambition to play for Glasgow and Scotland and playing in a Rugby World Cup has been a fantastic experience.
"It's great to see [team-mate and fly-half] Finn [Russell] signing as well [for three years] and there is a lot of talent at the club and it's great to be a part of it.
"Everyone works very hard and that just makes you want to improve as a player and improve the team as well. To have the opportunity to work with the coaches and players at the Warriors is fantastic.
"Scotstoun is a fun place to be and everyone works hard for each other and the culture is great.
"I used to go and watch my brother playing at Firhill and it's incredible to see the crowds growing since we moved to Scotstoun. The fans are really passionate and they make it a very special place to play."
Gray has made around 60 appearances for club and country in his professional career and played in four of Scotland's five matches during their World Cup campaign, which ended at the quarter-final stage.
And head coach Gregor Townsend said: "Jonny has made a huge contribution over the last couple of seasons and it's great news that he's staying with us for another three years.
"He works very hard and has made the breakthrough for club and country over the last couple of years."
India is using indelible ink on fingers to ensure people get only one chance to change their big bank notes.
[NEXT_CONCEPT]
Scotland lock forward Jonny Gray has signed a new contract with Pro12 champions Glasgow Warriors until 2018.