A cash handler has been arrested for allegedly swapping currency notes with fake bills at an automated cash point, Delhi police have told the BBC.
Mohammad Isha is accused of replacing the original bills while carrying out his job to refill the ATM last week.
One customer got four 2,000 rupee notes marked "children's bank of India", local media reported.
The State of Bank of India said the possibility of fake notes being dispensed was "very remote".
The bank said it had handed over the CCTV footage obtained from the ATM to the police, who confirmed to the BBC that Mr Isha had been arrested.
"He has told us that he replaced the notes while refilling the ATM machine. Further investigation is under way," Delhi police spokesperson Deependra Pathak said.
Mr Isha was working for a private firm that handled cash refilling at State Bank of India ATMs in Delhi.
India introduced a new 2,000 rupee note last year after the government brought in cash currency reforms to fight corruption and counterfeiting.