Evolution of the Payment System in India• Earliest Payment Instrument - Coins punch-marked orcast in silver or copper & credit system involved Bills ofExchange.• In ancient India - rnapatra or rnalekhya.• In Mauryan period – adesha• In Mughal period – dastawez dastawez-e-indultalab dastawez-e-miadi barattes
• Hundis were used, as remittance instruments as credit instruments for trade transactions types of Hundis, Darshani Hundis Muddati Hundis• Paper Money• Cheques• Post Bill – Inland Promissory Notes
• Cash Credit Account & Buying and Selling of Bills of Exchange• Negotiable Instruments Act, 1881• Clearing House• Reserve Bank of India (RBI)• Till early 2000, cash, DDs & cheque payments were the famous modes of transactions• Payment going E-way ECS (Credit) ECS (Debit) NEFT Credit cards & Debit cards etc
National Electronic Fund Transfer (NEFT)• Introduced in November 2005• Electronic funds transfer• ‘Eleven’ hourly settlements – Weekdays : 9 am to 7 pm – Saturday : 9 am to 1 pm
NEFT Transfer Online screen
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 centreProcessing & transmission of NEFT message to the beneficiary banks Data validation at receiving NEFT Service Centre Payment to beneficiary
How does NEFT system operateStep 1: First of all, the remitter has to provide the requisite information like• Beneficiary’s Name.• Beneficiary’s Account number.• Beneficiary’s Account type ( cash credit, loan account, etc)• Bank name, location & base branch in which the beneficiary account is held.• IFSC code of beneficiary bank etc in order to start the process of NEFT.Step 2: The bank branch at which the fund transfer request originated, prepares a message and sends it to its pooling centre (also called the NEFT Service Centre).
Step 3: The pooling centre forwards the message to the NEFTClearing Centre (operated by the National Clearing Cell, RBI,Mumbai) to be included in the next available batch.Step 4: The RBI at the clearing centre sorts the transactionsbank- wise and prepares accounting entries to receive funds from(debit) the originating banks and give the funds to (credit) thedestination banks. Thereafter, bank-wise remittance messagesare forwarded to the destination banks through their poolingcentre (the NEFT Service Centre).Step 5: The destination banks receive the remittance messagesfrom the Clearing Centre and pass on the credit to the beneficiaryaccounts.
Benefits• Faster – Its faster and more convenient than sending Demand Drafts / Cheques / Telegraphic Transfers.• Easier – Forget long queues and time-consuming DDs, cheques and pay orders! No need to visit the bank branch and search for a courier.• Reach – No Geographical limitations within India as long as it is a participating bank in the RBIs RTGS/NEFT system.
Indian Financial System Code(IFSC)• IFSC Code is 11 digit code for identifying the bank and branch• Used by both RTGS and NEFT finance transfer systems• code consists of 11 characters- first 4 characters – entity fifth position - ‘0’ last 6 characters – branch number• E.g. (ICIC0000039) is an IFSC code of one of the branches of ICICI Bank.
Real Time Gross Settlement (RTGS)• Started in October 2004• Transactions of a value of greater than “Rupees Two Lac “ is processed and no upper limit• RTGS is a large value funds transfer system• Transfer of money takes place from one bank to another on a “real time” and on “gross basis”• Money can be transferred to only those branches of banks where RTGS facility is enabled
Features of RTGS system• Participant Interface (PI)• Y-Topology
Features Contd.• Intra-day Liquidity Provision• Interaction with Net Settlement Systems
RTGS Transaction Flow
Criteria NEFT RTGSSettlement Done in batches (Slower) Real time (Faster)Minimum amount of money No Minimum 1 lacstransfer limitMaximum amount of No Limit No Limitmoney transfer limitWhen does the Credit Happens in the hourlyHappen in beneficiary Real time between Banks batch Between Banksaccount Upto 10,000 – Rs 2.5 Rs 25-30 (Upto 1 – 5 lacs)Maximum Charges as per from 10,001 – 1 lac – Rs 5 Rs 50-55 (Above 5 lacs)RBI from 1 – 2 lacs – Rs 15 (Lower charges for first half Above 2 lacs – Rs 25 of day)Suitable for Small Money Transfer Large Money Transfer