Chapter 6 – Remittance Products

NEFT

National Electronic Fund Transfer (NEFT) is a nation-wide payments system that allows the transfer of funds from one bank’s account to another.

Objective

  • To establish an electronic funds transfer system to facilitate an efficient, secure, economical, reliable and expeditious system of funds transfer and clearing in the banking sector throughout India,
  • To relieve the stress on the existing paper based funds transfer and clearing system.

Process Flow

The parties to a funds transfer under this NEFT System are

  • the sending bank,
  • the sending Service Centre, (
  • he NEFT Clearing Centre,
  • the receiving Service Centre and
  • the beneficiary branch.

Request for NEFT by a Bank Customer

  • A bank customer (i.e. sender or originator) desirous of remitting funds under the system shall submit an “NEFT Application Form” (to be designed by the participating bank) authorising the sending bank to debit the sender’s account and transfer funds to the beneficiary as specified in the Model NEFT Application Form.
  • The application could be submitted either in physical form or electronically.
  • A transaction within the NEFT system will be said to have been initiated when the sending bank accepts a payment instruction issued by the sender.
  • If in a single payment instruction, the sender directs payments to several beneficiaries, each payment direction shall be treated as a separate payment instruction.
  • A bank branch may reject a customer’s request for funds transfer when, in the opinion of the sending branch —
    • the customer has not placed funds at the disposal of the sending bank; or funds placed is not adequate to cover the sum to be remitted and the service charge; or
    • the beneficiary details given in the NEFT Application Form are not adequate to identify beneficiary by the beneficiary bank. The essential elements of beneficiary’s identification are:
      • Beneficiary’s Name;
      • Branch Name;
      • Bank Name;
      • Account Type;
      • Beneficiary’s Account No;
      • Beneficiary’s Branch IFSC
    • The sending bank shall prominently display at its premises / on its website for the benefit of customers providing information, inter-alia, the cut-off timings up to which it shall receive the NEFT application forms from its customers for different settlements and the likely timings of the settlements by the NEFT Clearing Centre.
    • Any payment instruction received after the cut-off time shall be included for the next available settlement either on the same NEFT day or the next-NEFT day.

Data Entry at the Sending Bank Branch

  • The sending bank branch shall prepare the SFMS message as and when the applications for funds transfer is received and arrange to send the message to NEFT Service Centre till the cut off time for the batch.

Processing / Data Upload at Sending NEFT Service Centre

  • The sending NEFT Service Centre shall accept the messages received from branches / customers through net banking platform if these are complete / in order and received within cut-off time or reject the same if the messages are incomplete I not confirming to the parameters specified.

Transmission / Submission of NEFT Message to the NEFT Clearing Centre

  • The sending Service Centre shall transmit the NEFT SFMS message to the NEFT Clearing Centre by using the communication network designated by Reserve Bank of India.
  • After consolidating all NEFT messages received from originating banks, the NEFT Clearing Centre shall process the data, arrive at fund settlement, send the fund file to Deposit Accounts Department (DAD), RBI for settlement and after settlement is over, send beneficiaries’ details / data to each beneficiary bank for affording credit to the beneficiaries’ accounts. Banks which have no transactions will get a batch wise ‘nil’ transactions report and a summary report at the end of the day indicating all inward transactions received by them during the day.
  • NEFT messages generated for destination banks will be transmitted to the NEFT Service Centre of each beneficiary bank using SFMS.

Data Validation at the Receiving NEFT Service Centre

  • On receipt of the NEFT message, the receiving NEFT Service Centre shall process these files and forward them to the beneficiary branches using SFMS.
  • Alternatively, the receiving NEFT Service Centre may use the Straight Through Processing (STP) interface available in SFMS and upload these NEFT messages to their internal banking solution directly, to afford the credits to the beneficiary accounts centrally.

Payment to Beneficiary

  • The beneficiary branches would make payment to the beneficiaries within two hours of batch settlement time by. crediting the specified account of the beneficiary or otherwise placing funds at the disposal of the beneficiary.

Revocation of Payment Instruction

  • A payment instruction issued for execution shall become irrevocable when it is executed by the sending bank. Any revocation, after the payment instruction is executed by the sending bank shall not be binding on any other party in the NEFT system.

Sender to be Advised in Case of Returns

  • If the beneficiary specified in the sender’s payment instruction fails to get payment through the NEFT system for some valid reasons, the sender shall be informed immediately after the sending bank gets the returned NEFT. The sending bank shall also arrange to make payment to the sender by crediting the account of the sender or otherwise placing funds at the disposal of the sender.

Beneficiary to be Advised of the Receipt of Funds

  • After crediting the account of the beneficiary, the beneficiary bank shall advise the beneficiary of the funds received. The Account Statement / Pass Book entry or any online messaging system shall indicate briefly the source of funds as well.

Holidays

NEFT will function for 24 * 7

NEFT: RIGHTS & OBLIGATIONS

  • Every participating bank or institution shall maintain the security, integrity and efficiency of the System.
  • Funds transfer instruction shall be issued by the sender / originator in a manner prescribed by the participant bank.
  • The format shall be complete and contain all requisite particulars.
  • The sender or the originator shall be responsible for the accuracy of the particulars given in the payment instructions and special care should be taken for account number of the beneficiary, etc.
  • The sender / originator shall be bound by any payment instruction executed by the bank if the bank had executed the payment instruction in good faith and in compliance with the security procedure, provided that the sender I originator shall not be bound by any payment instruction executed by the bank, if he proves that the same was not issued by him and that it was caused either by negligence or a fraudulent act of any employee of the bank.
  • The sender / originator shall ensure availability of funds in his / her account or remit cash while issuing the payment instruction to his / her bank.
  • The payment instruction shall become irrevocable once it is executed by the bank. The bank is not bound by any notice of revocation unless it is not in compliance with the security procedure. In the event of any delay or loss on account of error, negligence or fraud on the part of an employee of the beneficiary bank in the completion of funds transfer pursuant to receipt of payment instruction by the beneficiary bank leading to delayed payment to the beneficiary, the beneficiary bank shall pay compensation (at current Repo Rate plus two percent) for the period of delay.
  • In the event of delay in return of funds transfer instruction for any reason whatsoever, the beneficiary bank shall refund the amount together with interest (at current Repo Rate plus two percent) till the date of refund.
  • During the NEFT operating hours, originating banks shall endeavour to put through the request for NEFT transactions received by them, either online or across the counters, preferably in the next available batch, but, in any case, not exceeding two hours from the time of receipt of requests. In the likelihood of any delay / possible delay in adhering to this requirement, the sender / originator shall be informed of the delay / possible delay and the reasons for the same.
  • Customers can complain to the Banking Ombudsman if the complaint is not resolved to his / her satisfaction within thirty days.
  • The sending bank shall, upon completion of funds transfer of a payment instruction, furnish to the originator on request by him, a duly authenticated record of the transaction.
  • The beneficiary branches would make payment to the beneficiaries within two hours of batch settlement time by crediting the specified account of the beneficiary or otherwise placing funds at the disposal of the beneficiary. For any delay, beneficiary bank is liable to pay penalty (at the rate RBI LAF Repo rate plus two percent). Payment of penal interest shall be made to customer even if no claim is lodged by the customer to that effect.

 

Settlement timings

NEFT transfers are settled in half-hourly batches every day between 00:30 am and 00:00 am all through the year.

NEFT originally settled fund transfers in hourly batches. The RBI reduced clearance times to half-hourly batches in April 2016. In August 2019, the RBI announced that it would enable round-the-clock settlements from 16 December 2019.

Service charges for NEFT transactions

The structure of charges is as follows:

Inward transactions at destination bank branches (for credit to beneficiary accounts): Free, no charges to be collected from beneficiaries

Outward transactions at originating bank branches (charges for the remitter): Free, the RBI announced on 11 June 2019 that all charges for NEFT and RTGS collected from banks would be waived from 1 July 2019, and asked banks to pass on the benefits to customers.

RTGS

  • RTGS stands for Real Time Gross Settlement. RTGS system is a funds transfer mechanism where transfer of money takes place from one bank to another on a “real time” and on “gross” basis.
  • This is the fastest possible money transfer system through the banking channel.
  • Settlement in “real time” means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed.
  • “Gross settlement” means the transaction is settled on one to one basis without bunching with any other transaction. Considering that money transfer takes place in the books of the Reserve Bank of India, the payment is taken as final and irrevocable.
  • RTGS helps in preventing Systemic and Settlement Risks.
  • RTGS has replaced high value clearing across all the centers in India saving lot of expenses in the manual running of such activities.

Srervice Charge for RTGS

(a) Inward transaction– no charge to be levied.

(b)Outward transactions –  To push digital transactions RBI has removed charges for payments via NEFT and RTGS and asked banks to pass on the benefits to customers. This means that payments via NEFT and RTGS would become free

24×7 Availability of Real Time Gross Settlement (RTGS) System

In a major development, Reserve Bank of India (RBI) Governor Shaktikanta Das has confirmed that RTGS facility is now operational 24×7

NACH

What is NACH?

NACH, or the National Automated Clearing House, was a system introduced by the National Payments Corporation of India, for interbank, high volume, electronic transfers, which were periodic in nature. The NPCI introduced NACH as an improvement over the existing Electronic Clearing System (ECS), and consolidate multiple ECS systems running all over the country. The NACH system is used for bulk towards the distribution of subsidies, dividends, interest, salary, pension, etc. and also for bulk transactions towards the collection of payments for telephone, electricity, water, loans, investments in mutual funds, insurance premium, etc.

What are the advantages of NACH?

NACH hopes to have a national reach, and bring together all core banking branches of its partner branches. It follows a common set of standards and rules and even includes support for Aadhaar based transactions. NACH also provides a high level of security and enables the partners to scale in a cost-effective manner. The amount of manual intervention has been reduced, with less paperwork and friction between institutions.

NACH also reduces the turn-around time for mandate activation from 30 days, in case of ECS, to around 10 days. The new Mandate Management System, creates a unified format for mandate across all its partner banks, maintaining the legacy registration process.

Comparing NACH to ECS

A few key points while comparing NACH to ECS:

  • NACH is much faster with same day presentation, settlement and returns processing, compared to the ECS system, where the entire process spreads over 3 -4 days.
  • NACH has a well defined Dispute Management System, to raise and solves issues, which was absent in the case of ECS.
  • NACH also has a robust Mandate Management System, with standardised mandate format and verification workflow.
  • NACH introduced the Unique Mandate Reference Number to clearly identify each mandate with reference to a customer.

How is NACH utilized by other institutions?

Suppose an individual borrows money from a lending institution and agrees to pay it off in equal monthly installments. The institution offers the individual two modes of repayment. Either by transferring the EMI amount directly to the account of the institution ( via bank account transfer, UPI, online wallets, etc.), or auto debiting from the individuals account on a fixed day of every month. To avail the option of auto-debit, the individual is asked to fill out a NACH Mandate form, authorizing the institution to debit the amount from their account. The institution then sends the mandate form to their bank (Sponsor Bank), which in turn sends it to the individual’s bank, via NPCI’s Mandate Management System.

The mandate is then verified at the individual’s bank, for matching account details and signature. Once it is approved, the individual is notified that the mandate has been activated, over the Phone, SMS or email. The Sponsor Bank is then provided with an approved mandate detail, which includes the UMRN.

The UMRN or the Unique Mandate Reference Number helps the sponsor bank, identify the individual and their bank. The sponsor bank then returns the mandate details with the UMRN to the institution, which is used by them during the auto-debit process.

 

 

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