The surprise move is part of a government crackdown on corruption and illegal cash holdings.
Banks were shut on Wednesday to allow them enough time to stock new notes.
There are also limits on cash withdrawals from ATMs.
There were chaotic scenes outside banks in Mumbai and Delhi.
The BBC`s Geeta Pandey in Delhi says some banks extended working hours to deal with the rush, and have hired extra staff on a temporary basis.
Bank officials told the BBC that they also brought in extra cash to deal with the situation, and things had gone smoothly apart from the fact that the police had to be called in to deal with sporadic fights that broke out among customers.
Vijay Karan Sharma from Chhattisgarh, a student at Delhi University, told the BBC he had been standing in a queue since morning.
"I went home for Diwali and my parents gave me money as a gift. Now, instead of studying, I have been standing here," he said.
"I wish they had a simpler system for students. I desperately need cash to pay my rent and buy books and food."
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