PAYMENT & SETTLEMENT SYSTEM IN INDIA

EFFORTS:
MEENAKSHI JAIN
DHANALAKSHMI.K.T
POOJA JAIN
KAMALDEEP DESWAL
Structure of presentation
 Modernization of banking
 Real Time Gross Settlement System
 National Electronic Fund Transfer
 Difference Between RTGS and NEFT
Modernization of Banking
 Banking industry worldwide is being transformed.
 The main thrust of financial sector reforms in India has
been to strengthen the system, introduce more
competition and move towards international best
practices.
 Well designed financial infrastructure should have efficient
payment and settlement system, effective market
discipline and strong regulatory and supervisory
framework.
 The technological innovation is a major force for change.
 Real Time Gross Settlement
System
 Real time gross settlement systems (RTGS) are a
funds transfer mechanism where transfer of money takes
place from one bank to another on a "real time" and on
"gross" basis.
 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. Once processed, payments are final and
irrevocable.
 RTGS is a large value (minimum value of transaction
should be Rs. 1,00,000) funds transfer system whereby
financial intermediaries can settle interbank transfers for
their own account as well as for their customers.
 Customers can access the RTGS facility between 9 am
to 4:30 pm on week days and 9 am to 12 noon on
Saturdays.
Evolution of RTGS
 The system went ‘live’ on 26 March with
State Bank of India, HDFC Bank and
Standard Chartered Bank.
 The Reserve Bank of India expected 120 scheduled
commercial banks and primary dealers to become part of
the real time gross settlement system (RTGS) by June
2004.
 ICICI Bank, IndusInd Bank, BNP Paribas,
Bank of Baroda, Bank of India, Canara Bank,
Central Bank of India, Corporation Bank and
Union Bank of India were amonst those likely to join
shortly.
 On 11 May 2004, 19 more banks joined RBI's RTGS
bringing the total to 23. This include Bank of Baroda,
Punjab National Bank, Canara Bank, Union Bank of
India, Indian Overseas Bank, Central Bank of India,
Dena Bank, BNP Paribas, IndusInd Bank, ING Vysya
Bank.
 Out of the total 23 banks, the early batch of four banks
State Bank of India, HDFC Bank, Standard Chartered
Bank and Saraswat Bank have already embarked upon
customer transactions.
PROCESS:
SENDING BANK

PAYMENT MESSAGE

CENTRAL BANK

PROCESSING OF MESSAGE

RECEIVING BANK
 National Electronic Fund Transfer
 NEFT is a nation-wide electronic funds transfer system,
which facilitates transfer of funds from any bank branch to
any other bank branch. This is a simple, secure, safe and
fastest mode of funds transfer. This is an ideal mode of
funds transfer for Retail remittances.
 Presently, Over 45000 bank branches are enabled for
sending and receiving NEFT messages in India. There is no
amount ceiling under this scheme and as such the
customers can remit any amount.
 There are six settlement windows for NEFT at 9.30,
10.30, 12.00, 13.00, 15.00 and 16.00 hours on
weekdays and 9.30, 10.30, and 12.00 hours on
Saturdays.
 The money will be credited to the beneficiary’s account
on the same day or at the most next day in case the
message is sent during the last batch of settlement.
 OBJECTS:
The objects of the NEFT System are:
 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, and
 To relieve the stress on the existing paper based funds
transfer and clearing system.
NEFT - PROCESS FLOW
The parties to a funds transfer under this NEFT System
are:

 the sending bank

 the sending Service Centre
 the NEFT Clearing Centre
 the receiving Service Centre
 the beneficiary branch
 PROCESS
Request for NEFT by bank customer

Data Entry at the Sending Bank Branch

Processing /Data Upload at Sending NEFT Service Centre

Transmission/Submission of NEFT message to the NEFT centre

Processing & transmission of NEFT message to the beneficiary banks

Data validation at receiving NEFT Service Centre

Payment to beneficiary
Request for NEFT by 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) authorizing the sending bank to debit the sender's
account and transfer funds to the beneficiary as
specified in the NEFT Application Form. The application
could be submitted either in physical form or
electronically.
 The payment instruction given by the customer shall be
in compliance with the provisions. Banks shall ensure
that the customers are made aware of the rights and
obligations of participants in NEFT system.
 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,
i) 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
ii) 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 :
 Beneficiary branch Name :
 Beneficiary Bank Name :
 Beneficiary's Account Type :
 Beneficiary's Account No. :
 Beneficiary’s Branch IFSC :
 The sending bank shall prominently display at its
premises 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 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.
DIFFERENCE B/W RTGS & NEFT

NEFT RTGS
NEFT are electronic fund In RTGS, transactions are
transfer modes that operate processed continuously
on a deferred net throughout the RTGS
settlement (DNS) basis business hours.
which settles transactions
in batches. In DNS, the
settlement takes place at a
particular point of time. All
transactions are held up till
that time.
CORPORATE INTERNET BANKING

Minimum Maximum
RTGS Rs. 1 Lakh No Limit

NEFT No Limit No Limit

INTERNET BANKING HOURS
RTGS
Day Start Time End Time
Monday to Friday 9:00 hrs 16:00 hrs

Saturday 9:00 hrs 12:00hrs

NEFT
Day Start Time End Time

Monday to Friday 8:00 hrs 16:00 hrs

Saturday 8:00 hrs 11:30hrs

 PROCESSING CHARGES
While RBI has waived its processing charges for all
electronic payment products till March31, 2008, levy of
service charges by banks is left to the discretion of the
respective banks.
Amount Service Charge

NEFT Upto Rs. 1 Lakh Rs. 5

Rs. 1 Lakh & above Rs. 25

RTGS Upto Rs. 5 Lakh Rs. 25

Rs. 5 Lakh & above Rs. 50

 However, RTGS facility is available in over 25000
branches, while NEFT is available in 9800 branches.
 Besides, while all commercial banks have put in place the
RTGS facility, only 43 banks have purchased the software
required to facilitate NEFT based transaction.
Thank You !