The document discusses various concepts in banking and accounting transactions, including petty cash management and electronic fund transfer methods like NEFT, RTGS, and ECS. Petty cash is used for minor office expenses and must be regularly reconciled, while ECS facilitates bulk payments and collections for repetitive transactions. NEFT and RTGS are payment systems introduced by the RBI for transferring funds, with NEFT processing transactions in batches and RTGS enabling real-time settlements for large value transactions.

1. UNIT-5
Concepts in Banking and
Accounting of transactions

2. Concepts in Banking and Accounting of
transactions: Accounting in banks,
Electronic Banking, RTGS, ATM, MICR,
OCR, OMR, and DATANET, Petty Cash,
Electronic Clearing Service (ECS),
National Electronic Funds Transfer
(NEFT) System, Real Time Gross
Settlement (RTGS) System, IMPS.

3. PETTY CASH
Petty cash is a nominal sum which is preserved in
hand to cover minor expenses, such as
reimbursements or other office-related expenses.
Like other funds, petty cash will also be subject to
regular reconciliations, with every transaction
being recorded in the official statements and other
records.
Almost every department of a large corporation
maintains petty cash in a drawer, small box, or
other similar containers.

4. The presence of petty cash provides the much-
needed flexibility for doing small transactions for
which handing out a demand draft or a bank
cheque seems illogical. The nominal amount
stored in the form of cash which an organisation
deems petty will vary across companies.
However, most organisations maintain a petty cash
reserve in the range of Rs 5,000 to Rs 20,000.

5. The following are some of the transactions for which petty
cash is made use of:
– Office stationeries
– Office supplies
– Water dispensary
– Team lunch
– Refreshments for the clients who visit the office for business
– Reimbursing employees who have spent a nominal sum on behalf
of the company
Each department would have appointed an executive to look
after the transactions of the petty cash reserve. The duty
of custody of petty cash involves enforcing the rules set to
make use of petty cash, disbursing, and reimbursing petty
cash on a regular basis.

6. Journal Entries
Even though petty cash is a nominal sum, the transactions
made using petty cash is still recorded in the financial
statements of the organisation.
Accounting journal entries would not be made when there is
a purchase being made using the petty cash.
It is recorded when the individual in charge to oversee this
fund is in need of more money in exchange for the
invoice, bills, or receipts.
The journal entry is made only when the custodian of petty
cash is handed with excess cash or when a large amount
is being debited or credited to the petty cash.

7. Electronic Clearing Service (ECS),
ECS is an electronic mode of payment / receipt for
transactions that are repetitive and periodic in nature.
ECS is used by institutions for making bulk payment of
amounts towards distribution of dividend, interest, salary,
pension, etc., or for bulk collection of amounts towards
telephone / electricity / water dues, cess / tax collections,
loan installment repayments, periodic investments in
mutual funds, insurance premium etc. Essentially, ECS
facilitates bulk transfer of monies from one bank account
to many bank accounts or vice versa.
ECS includes transactions processed under National
Automated Clearing House (NACH) operated by
National Payments Corporation of India (NPCI).

8. 2Primarily, there are two variants of ECS - ECS
Credit and ECS Debit.
ECS Credit is used by an institution for affording
credit to a large number of beneficiaries (for
instance, employees, investors etc.) having
accounts with bank branches at various locations
within the jurisdiction of a ECS Centre by raising
a single debit to the bank account of the user
institution. ECS Credit enables payment of
amounts towards distribution of dividend, interest,
salary, pension, etc., of the user institution.

9. ECS Debit is used by an institution for raising debits to
a large number of accounts (for instance, consumers
of utility services, borrowers, investors in mutual funds
etc.) maintained with bank branches at various
locations within the jurisdiction of a ECS Centre for
single credit to the bank account of the user
institution.
ECS Debit is useful for payment of telephone / electricity
/ water bills, cess / tax collections, loan installment
repayments, periodic investments in mutual funds,
insurance premium etc., that are periodic or repetitive
in nature and payable to the user institution by large
number of customers etc.

10. Based on the geographical location of
branches covered, there are three broad
categories of ECS Schemes – Local
ECS, Regional ECS and National ECS.
These schemes are either operated by RBI
or by the designated commercial banks.
NACH is also one of the form of ECS
system operated by NPCI and further
details about NACH is available at NPCI
web site under the link
http://www.npci.org.in/clearing_faq.aspx.

11. • Local ECS – this is operating at 81 centres
/ locations across the country. At each of
these ECS centres, the branch coverage is
restricted to the geographical coverage of
the clearing house, generally covering one
city and/or satellite towns and suburbs
adjoining the city.

12. • Regional ECS – this is operating at 9 centres /
locations at various parts of the country. RECS
facilitates the coverage all core-banking-enabled
branches in a State or group of States and can
be used by institutions desirous of reaching
beneficiaries within the State / group of States.
The system takes advantage of the core banking
system in banks. Accordingly, even though the
inter-bank settlement takes place centrally at one
location in the State, the actual customers under
the Scheme may have their accounts at various
bank branches across the length and breadth of
the State / group of States.

13. National ECS – this is the centralized version of
ECS Credit which was launched in October 2008.
The Scheme is operated at Mumbai and
facilitates the coverage of all core-banking
enabled branches located anywhere in the
country. This system too takes advantage of the
core banking system in banks.
Accordingly, even though the inter-bank settlement
takes place centrally at one location at Mumbai,
the actual customers under the Scheme may
have their accounts at various bank branches
across the length and breadth of the country.

14. Banks are free to add any of their core-
banking-enabled branches in NECS
irrespective of their location. Details of
NECS Scheme are available on the
website of Reserve Bank of India at
http://www.rbi.org.in/scripts/bs_viewcontent
.aspx?Id=2345

15. The User intending to effect payments through ECS
Credit has to submit details of the beneficiaries (like
name, bank / branch / account number of the
beneficiary, MICR code of the destination bank
branch, etc.), date on which credit is to be afforded to
the beneficiaries, etc., in a specified format (called
the input file) through its sponsor bank to one of the
ECS Centres where it is registered as a User.
The bank managing the ECS Centre then debits the
account of the sponsor bank on the scheduled
settlement day and credits the accounts of the
destination banks, for onward credit to the accounts
of the ultimate beneficiaries with the destination bank
branches.

16. Further details about the ECS Credit scheme
are contained in the Procedural Guidelines
and available on the website of Reserve
Bank of India at
http://www.rbi.org.in/Scripts/ECSUserView.
aspx?Id=1

17. ECS can be used to transfer funds to Non
Resident External (NRE) and Non
Resident Ordinary (NRO) accounts in the
country. This, however, is subject to the
adherence to the provisions of the Foreign
Exchange Management Act, 2000 (FEMA)
and Wire Transfer Guidelines.

18. The Reserve Bank of India has deregulated the
charges to be levied by sponsor banks from user
institutions. The sponsor banks are, however,
required to disclose the charges in a transparent
manner.
With effect from 1st July 2011, originating banks are
required to pay a nominal charge of 25 paise per
transaction to the Clearing house and destination
bank respectively.
Destination bank branches have been directed to
afford ECS Credit free of charge to the
beneficiary account holders.

20. The most commonly used online fund
transfer method has been:
– National Electronic Funds Transfer (NEFT)
– Real-Time Gross Settlement (RTGS)
– Immediate Mobile Payment Service (IMPS)
While NEFT and RTGS were introduced by
RBI (Reserve Bank of India),
IMPS was introduced by National Payments
Corporation of India (NPCI).

21. NEFT
National Electronic Funds Transfer (NEFT) is
a payment system that facilitates one-to-one
funds transfer.
Using NEFT, people can electronically transfer
money from any bank branch to a person
holding an account with any other bank
branch, which is participating in the payment
system.
Fund transfers through the NEFT system do not
occur in real-time basis and the fund transfer
settles in 23 half-hourly batches.

22. • Through this move, the RBI has joined an
elite club of countries having payment
systems which enable round-the-clock fund
transfer and settlement of any value.
• Benefit to Customers: Customers can
now transfer money through NEFT without
paying any charges any time of the day
whereas banks charge a fee for fund
transfer through cheques and Demand
Draft (DD).

23. Background
The NEFT system, introduced in 2005, has seen
exponential growth in recent years reflecting its
popularity as well as increasing customer
acceptance. Despite such growth, many banks
continued to levy the maximum permissible
charges to their customers.
It was desirable that the benefits accruing on
account of increasing volume of transactions are
passed on to the customers so as to incentivise
greater use of the electronic payment system
in place of cumbersome paper-based mechanism
like cheques/DDs.

24. NEFT offers the following advantages for funds transfer or
receipt:
– Round the clock availability on all days of the
year.
– Near-real-time funds transfer to the beneficiary
account and settlement in a secure manner.
– Pan-India coverage through large network of
branches of all types of banks.
– Positive confirmation to the remitter by SMS /
e-mail on credit to beneficiary account.
– Penal interest provision for delay in credit or
return of transactions.

25. NEFT offers the following advantages for funds transfer or
receipt:
– No levy of charges by RBI from banks.
– No charges to savings bank account
customers for online NEFT transactions.
– Besides funds transfer, NEFT system can be
used for a variety of transactions including
payment of credit card dues to the card issuing
banks, payment of loan EMI, inward foreign
exchange remittances, etc.
– Available for one-way funds transfers from
India to Nepal.

26. Step-wise flow of NEFT transaction.
Step-1: An individual / firm / corporate willing to transfer funds
through NEFT can use the internet/mobile banking facility offered
by his/her bank for initiating online funds transfer request. The
remitter has to provide details of beneficiary such as, name of
the beneficiary, name of the bank branch where the beneficiary
has an account, IFSC of the beneficiary bank branch, account
type and account number, etc. for addition of the beneficiary to
his/her internet/mobile banking module. Upon successful
beneficiary addition, the remitter can initiate online NEFT funds
transfer by authorizing debit to his/her account. Alternatively, the
remitter can also visit his/her bank branch for initiating NEFT
funds transfer through branch/off-line mode. The customer has to
fill-in the beneficiary details in NEFT application form available at
the bank branch and authorize the branch to debit to his/her
account to the extent of the amount requested in NEFT
application form.

27. Step-2: The originating bank prepares a message and sends the
message to its pooling centre, also called the NEFT Service
Centre.
Step-3: The pooling centre forwards the message to the NEFT
Clearing Centre, operated by the RBI, to be included for the
next available batch.
Step-4: The Clearing Centre sorts the funds transfer transactions
beneficiary bank-wise and prepares accounting entries to
receive funds from the originating banks (debit) and give the
funds to the beneficiary banks (credit). Thereafter, bank-wise
remittance messages are forwarded to the beneficiary banks
through their pooling centre (NEFT Service Centre).
Step-5: The beneficiary banks receive the inward remittance
messages from the Clearing Centre and pass on the credit to
the beneficiary customers’ accounts.

28. The person having no bank account can
remit funds through NEFT to a beneficiary
having a bank account, with another NEFT
member bank.
It can be done by depositing cash at the
nearest NEFT enabled branch of any bank,
by furnishing additional details such as
complete address, telephone number, etc.
Such cash remittances will, however, be
restricted to a maximum of Rs. 50,000/-
per transaction.

29. The outbound remittances through NEFT system
are permitted only to Nepal under Indo-Nepal
Remittance Scheme. Under this scheme, the
remitter can transfer funds from any of the NEFT-
enabled bank branches in India to Nepal,
irrespective of whether the beneficiary in Nepal
maintains an account with a bank branch in
Nepal or not. The beneficiary would receive funds
in Nepalese Rupees.
The details of the Indo-Nepal Remittance Facility Scheme
are available on the website of RBI at
https://rbi.org.in/scripts/FAQView.aspx?Id=67

30. The essential elements of beneficiary's
identification are:
Beneficiary's Name
Beneficiary's Branch Name
Beneficiary's Bank Name
Beneficiary's Account Type
Beneficiary's Account No.
Beneficiary's Branch IFSC

31. The RBI does not levy any charges from member
banks for NEFT transactions. Also, there are no
charges to be levied for Inward transactions at
destination bank branches for giving credit to
beneficiary accounts.
For outward transactions, the maximum charges
that bank can levy from their customer for NEFT
transaction are as follows:
a) With effect from January 01, 2020, banks have
been advised to not levy any charges from their
savings bank account holders for NEFT funds
transfers initiated online.

32. b) Maximum charges which can be levied for outward
transactions at originating bank for other transactions –
- For transactions up to Rs. 10,000 : not exceeding Rs. 2.50 (+
Applicable GST)
- For transactions above Rs. 10,000 up to Rs. 1 lakh: not
exceeding Rs. 5 (+ Applicable GST)
- For transactions above Rs. 1 lakh and up to Rs. 2 lakhs: not
exceeding Rs. 15 (+ Applicable GST)
- For transactions above Rs. 2 lakhs: not exceeding Rs. 25 (+
Applicable GST)
c) The details about Charges applicable for transferring funds
from India to Nepal using the NEFT system under the
Indo-Nepal Remittance Facility Scheme is available on the
website of RBI at
https://rbi.org.in/scripts/FAQView.aspx?Id=67

33. National Electronic Funds Transfer (NEFT) – NEFT
transfers funds between two bank accounts through
electronic messages.
This transaction happens on a one–to–one basis. Fund
transfer through NEFT doesn’t occur on a real-time
basis which is unlike RTGS and IMPS.
NEFT usually settles transfers in hourly batches during
their business hours. In NEFT, 23 settlements occur
between 8 A.M. and 6.30 P.M. NEFT fund transfer
conducts business on weekdays and the 1st, 3rd, and
the 5th Saturday of a calendar month.
Additionally, NEFT is managed by the Reserve Bank of
India and its transfer mechanism settles payments
through net transfer facility in batches.

34. 'RTGS' stands for Real Time Gross
Settlement, which can be explained as a
system where there is continuous and real-
time settlement of fund-transfers, individually
on a transaction by transaction basis (without
netting).
NEFT is an electronic fund transfer system in
which the transactions received up to a
particular time are processed in batches.
Contrary to this, in RTGS, the transactions are
processed continuously on a transaction by
transaction basis throughout the day.

35. RTGS is available 24x7x365 with effect from
December 14, 2020.
The RTGS system is primarily meant for
large value transactions. The minimum
amount to be remitted through RTGS is Rs.
2,00,000/- with no upper or maximum
ceiling
With effect from July 01, 2019, the Reserve
Bank has waived the processing charges
levied by it for RTGS transactions. Banks
may pass on the benefit to its customers.

36. With a view to rationalise the service charges levied by
banks for offering funds transfer through RTGS system, a
broad framework of charges has been mandated as
under:
a) Inward transactions – Free, no charge to be levied.
b) Outward transactions – Rs. 2,00,000/- to 5,00,000/- : not
exceeding Rs. 24.50/-; (exclusive of tax, if any)
Above Rs. 5,00,000/- : not exceeding Rs. 49.50/-. (exclusive
of tax, if any)
Banks may decide to charge a lower rate but cannot charge
more than the rates prescribed by RBI.
Circular Ref. No. DPSS (CO) RPPD No.1140/04.03.01/2019-20 dated
December 16, 2019 on ‘Furthering Digital Payments – Waiver of
Charges – NEFT System’ (available at
https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11756&M
ode=0) may be referred to for further details.

37. The remitting customer has to furnish the following
information to a bank for initiating an RTGS
remittance:
– Amount to be remitted
– The account number to be debited
– Name of the beneficiary bank and branch
– The IFSC number of the receiving branch
– Name of the beneficiary customer
– Account number of the beneficiary customer
– Sender to receiver information, if any

38. For a funds transfer to go through RTGS,
both the sending bank branch and the
receiving bank branch need to be RTGS
enabled.
Presently, there are more than 1,65,000
RTGS enabled bank branches, the list of
which is available on the RBI website at the
link
http://rbidocs.rbi.org.in/rdocs/RTGS/DOCs/
RTGEB0815.xlsx

39. Unique Transaction Reference (UTR) number is a
22 character code used to uniquely identify a
transaction in RTGS system.
The Legal Entity Identifier (LEI) is a 20-digit number
used to uniquely identify parties to financial
transactions worldwide. It has been implemented
to improve the quality and accuracy of financial
data reporting systems for better risk
management.
It is used to create a global reference data system
that uniquely identifies every legal entity in any
jurisdiction that is party to a financial transaction.

40. It can be obtained from any of the Local
Operating Units (LOUs) accredited by
the Global Legal Entity Identifier
Foundation (GLEIF), the body tasked to
support the implementation and use of LEI.
In India, LEI can be obtained from Legal
Entity Identifier India Ltd. (LEIL)
(https://www.ccilindia-lei.co.in), which is
also recognised as an issuer of LEI by the
Reserve Bank.

41. All payment transactions of value Rs.50 crore
and above undertaken by entities (non-
individuals) should include remitter and
beneficiary LEI information from April 1,
2021. Banks should use the ‘Remittance
Information’ field for recording Remitter
and Beneficiary LEI.
LEI is not required for customer transactions
where both remitter and beneficiary are
individuals.

42. Real-time Gross Settlement (RTGS) –RTGS transfers
funds in real-time, i.e. there isn’t any waiting period while
transferring funds. Through RTGS, the transaction is
settled as and when it is processed.
RTGS doesn’t bundle your fund transfer settlement with
other fund transfers. In RTGS, your funds are not
transferred in batches. In the RTGS fund transfer
mechanism, your funds are not clubbed with payments of
other users.
In RTGS, your funds are transferred individually and they
end up in your payee’s account. Moreover, RTGS is a
dedicated fund transfer tool and is faster than
NEFT. This is why RTGS is preferred for high-value
transactions.

43. Through this mechanism, RTGS transactions are
processed within RTGS business hours.
RTGS funds are usually credited to payee’s
accounts within half an hour.
The RTGS window is open from 9 a.m. to 4.30 p.m.
on weekdays and 9 a.m. to 2 p.m. on Saturdays.
Sundays, bank holidays, and bank-off days are
not included in RTGS business hours.

44. If you need to transfer funds through RTGS and
NEFT, then you need the payee’s account no.,
IFSC code, bank branch, beneficiary’s name, and
the amount of money that has to be transferred.
The minimum transaction limit of RTGS and NEFT
usually is Re. 1. Additionally, the maximum limit
for NEFT and RTGS transfer mechanisms
depends on each bank.
As aforementioned, the minimum transfer limit of
IMPS is Re. 1 and the maximum limit of funds
can go up to Rupees 2 lakh in a day.

45. NEFT, RTGS, and IMPS transactional
charges vary from bank to bank.
NEFT charges can be as low as Re. 1 and as
high as Rupees 25, depending upon the
channel of your NEFT transaction.
RTGS transactions too have charged as low
as Rupees 25 and as high as Rupees 55.
GST may also be applicable on these
transfers.
If an RTGS transfer is carried out outside
business hours, additional charges may be
applied.

47. IMPS is an innovative real time payment
service that is available round the clock.
This service is offered by National
Payments Corporation of India (NPCI) that
empowers customers to transfer money
instantly through banks and RBI authorized
Prepaid Payment Instrument Issuers (PPI)
across India.

48. Funds Transfer and Remittances
1. Sending Money 2. Receiving Money
QSAM (Query Service on Aadhaar Mapper) –
This service helps user in knowing their Aadhaar
Seeding status with their bank account.
– This service can be availed by dialling *99*99#
– User will know whether his/her AADHAAR
number is seeded/linked to any bank account
number or not
– If yes, then with which bank and when it was
last updated

49. The following channels may be used to initiate
IMPS transactions.
– Mobile phones
– Smartphone- Bank App/ SMS / WAP/USSD (NUUP)
– ·Basic phone-SMS/USSD (NUUP)
– Internet- Bank’s Internet banking facility
– ATM-By Using ATM Card at Banks ATM
The sender enters receivers details like:
• Mobile Money Identifier ·(MMID) & Mobile no. or Account
number & IFS Code or Aadhaar number
• Amount to be transferred
• Remarks/Payment Reference number
• Sender’s M-PIN
Both sender & receiver get SMS confirmation.

50. For using IMPS on mobile phones, a
customer will have to register for mobile
banking with his/her individual bank.
However, for initiating IMPS using Bank
branch, Internet banking and ATM
channels, no prior Mobile banking
registration is required.
Both banked as well as un-banked customer
can avail IMPS. However, unbanked
customer can initiate IMPS transaction
using the services of Pre-Paid Payments
instrument issuer (PPI).

51. Mobile Money Identifier is a 7 digit
number, issued by banks. MMID is one of
the input which when clubbed with mobile
number facilitates fund transfer.
Combination of Mobile no. & MMID is
uniquely linked with an Account number
and helps in identifying the beneficiary
details.
Different MMID’s can be linked to same
Mobile Number. (contact your bank for
getting the MMID issued)

52. The process of IMPS transfer through net-banking
is as follows – Log into your bank’s net-banking
portal; add an IMPS beneficiary by inputting the
beneficiary’s account no., account type, IFSC
Code, name, and contact details; after your bank
confirms that the beneficiary has been included,
go to Fund Transfer and then select the
beneficiary to whom you want to transfer funds.
Once you do that the beneficiary’s account details
will appear, enter Amount and Remarks
(optional). Verify the payment and your funds will
be transferred instantly through IMPS.

53. The process of IMPS transfer through mobile banking is as
follows – Log into your bank’s mobile banking application;
add the beneficiary, if not already added (the process of
adding a beneficiary has been described above), once the
beneficiary is added, click on Send Money/Fund Transfer
tab and go to the IMPS option; there enter Beneficiary
mobile no., Amount and the beneficiary’s Mobile Money
Identifier (MMID). The application will then ask for your
Mobile PIN (MPIN) to authenticate the transfer, once you
verify your Mobile PIN, your money will be transferred and
then the bank will send you a confirmation text message
mentioning the transaction no. You can use that
transaction no. while giving feedback/for queries and
complaints.

54. To receive money through IMPS, just
provide your mobile no. and Mobile Money
Identifier (MMID) to the payer, and then the
payer will be able to transfer money to you
through IMPS. If the payer is paying you
through IMPS net-banking, you will have to
provide the payer with your account details
such as account name, account no., IFSC
Code, etc. so that the payer can add you as
a beneficiary.

55. For IMPS, the minimum transactional
charges usually are Rupees 5 and
maximum charges can go up to Rupees 15.
Moreover, these charges may vary from bank
to bank.
Moreover, there can be an additional service
tax chargeable with IMPS.

56. e-RUPI is a cashless and contactless instrument
for digital payment. It is a QR code or SMS
string-based e-Voucher, which is delivered to the
mobile of the beneficiaries.
The users of this seamless one-time payment
mechanism will be able to redeem the voucher
without a card, digital payments app or internet
banking access, at the service provider.
It has been developed by National Payments
Corporation of India on its UPI platform, in
collaboration with the Department of Financial
Services, Ministry of Health & Family Welfare
and National Health Authority.

57. e-RUPI connects the sponsors of the services with
the beneficiaries and service providers in a
digital manner without any physical interface.
It also ensures that the payment to the service
provider is made only after the transaction is
completed.
Being pre-paid in nature, it assures timely payment
to the service provider without involvement of
any intermediary.

58. It is expected to be a revolutionary initiative in the
direction of ensuring a leak-proof delivery of welfare
services.
It can also be used for delivering services under
schemes meant for providing drugs and nutritional
support under Mother and Child welfare schemes,
TB eradication programmes, drugs &
diagnostics under schemes like Ayushman
Bharat Pradhan Mantri Jan Arogya Yojana,
fertilizer subsidies etc.
Even the private sector can leverage these digital
vouchers as part of their employee welfare and
corporate social responsibility programmes.

60. Government Initiatives
As per Union Budget 2021-22, the government will disinvest IDBI
Bank and privatise two public sector banks.
As per Union Budget 2019-20, the Government proposed fully
automated GST refund module and an electronic invoice
system that will eliminate the need for a separate e-way bill.
Government smoothly carried out consolidation, reducing the
number of Public Sector Banks by eight.
As of September 2018, the Government of India made Pradhan
Mantri Jan Dhan Yojana (PMJDY) scheme an open-ended
scheme and added more incentives.
The Government of India planned to inject Rs. 42,000 crore (US$
5.99 billion) in public sector banks by March.

61. he achievements of the Government:
In April 2021, Unified Payments Interface (UPI) recorded
2.73 billion transactions worth Rs. 4.93 lakh crore
(US$ 67.31 billion).
According to the RBI, India’s foreign exchange reserves
reached US$ 582.41 billion, as of April 16, 2021
To improve infrastructure in villages, 204,000 point of
sale (PoS) terminals have been sanctioned from the
Financial Inclusion Fund by National Bank for
Agriculture & Rural Development (NABARD).
The number of transactions through immediate payment
service (IMPS) increased to 322.96 million (by volume)
and amounted to Rs. 2.99 trillion (US$ 40.85 billion) by
value in April 2021.