As the central bank, the RBI has been playing a vital role in promoting payment and settlement of monetary transactions involving the banking system. RBI has developed a well structured payment and settlement system that facilitate the transfer of money all across the country. The RBI ensures Safe, Secure, Sound, Efficient, Accessible and Authorized payment systems in the country.
In the payment and settlement front, initiatives taken by RBI in the mid-eighties and early-nineties focused on technology-based solutions for the improvement of the payment and settlement system infrastructure, coupled with the introduction of new technologies. One such important development was the introduction of electronic fund transfer.
National Electronic Fund Transfer (NEFT)
The initial electronic fund transfer system introduced in the late 1990s enabled an account holder of a bank to electronically transfer funds to another account holder with any other participating bank. Later in 2005, RBI has launched National Electronic Fund Transfer (NEFT) Scheme with advanced and secure features for facilitating one-to-one funds transfer requirements of individuals / corporate.
Individuals, firms or corporate maintaining accounts with a bank branch can receive funds through the NEFT system. It is, therefore, necessary for the beneficiary to have an account with the NEFT enabled destination bank branch in the country.
There is no limit – either minimum or maximum – on the amount of funds that could be transferred using NEFT. However, maximum amount per transaction is limited to Rs.50,000/- for cash-based remittances within India and also for remittances to Nepal under the Indo-Nepal Remittance Facility Scheme.
Presently, NEFT operates in hourly batches – there are twelve settlements from 8 am to 7 pm on week days (Monday through Friday) and six settlements from 8 am to 1 pm on Saturdays.
Real Time Gross Settlement (RTGS)
RTGS provides continuous (real-time) settlement of funds transfers individually on an order by order basis (without netting). Here, ‘Real Time’ means the processing of instructions at the time they are received rather than at some later time. Similarly, ‘Gross Settlement’ means that settlement of funds transfer instructions occurs individually (on an instruction by instruction basis).
Considering that the funds settlement takes place in the books of the Reserve Bank of India, the payments are final and irrevocable.
Difference between NEFT and RTGS
Though both NEFT and RTGS are for fund transfer arrangements, both differ considerably in operation. NEFT is an electronic fund transfer system that operates on a Deferred Net Settlement (DNS) basis which settles transactions in batches. In DNS, the settlement takes place with all transactions received till the particular cut-off time. These transactions are netted (payable and receivables) in NEFT. This means that transactions are settled in batches under net.
Under RTGS the transactions are settled individually. RTGS transactions are processed continuously throughout the RTGS business hours.
The NEFT platform is primarily aimed for small value transactions. At one transaction the maximum value should be Rs 50000.
On the other hand, the RTGS is aimed for large value transactions. The minimum amount to be remitted through RTGS is Rs 2 lakh. There is no upper ceiling for RTGS transactions.