National Electronic Funds Transfer System (NEFT)

National Electronic Funds Transfer (NEFT) is an electronic payment system in India that enables individuals, businesses, and organizations to transfer funds from one bank account to another electronically. Here are detailed notes on the National Electronic Funds Transfer (NEFT) system:

  1. Introduction:
    • NEFT is a nation-wide electronic funds transfer system introduced by the Reserve Bank of India (RBI) to facilitate secure, efficient, and cost-effective interbank transactions.
    • It operates on a deferred net settlement basis, where transactions are processed in batches at fixed intervals throughout the day.
  2. Process:
    • Sender’s Instruction: The customer provides instructions to their bank to initiate an NEFT transaction, specifying the beneficiary’s bank account details, including the bank name, branch, and account number.
    • Fund Transfer: The sender’s bank sends the transaction details to the RBI’s NEFT system, including the amount to be transferred, sender and beneficiary information, and other necessary data.
    • Batch Processing: NEFT transactions are processed in batches scheduled at regular intervals throughout the working hours of the RBI.
    • Fund Transfer to Beneficiary Bank: The RBI transfers the funds to the beneficiary’s bank through a secure messaging system.
    • Beneficiary’s Account Credited: The beneficiary’s bank receives the funds and credits them to the beneficiary’s account.
  3. Transaction Timings and Settlement Cycles:
    • NEFT operates on a 24×7 basis, allowing customers to initiate transactions at any time.
    • Settlement Cycles: Transactions are settled in batches, and the settlement cycles vary based on the time of the transaction initiation. Since December 2019, NEFT operates on a real-time basis, meaning the funds are credited to the beneficiary’s account within minutes of the transaction initiation, irrespective of the settlement cycle.
  4. Transaction Limits:
    • NEFT transaction limits depend on the customer segment:
      • Retail Customers: There is no minimum or maximum limit for NEFT transactions initiated by retail customers.
      • Corporate Customers: Corporate customers may have predefined transaction limits set by their respective banks.
  5. Charges and Fees:
    • The RBI has mandated that member banks cannot charge any fees from customers for inward NEFT transactions (i.e., receipt of funds).
    • Outward NEFT transaction charges, if applicable, vary from bank to bank and depend on factors such as the transaction amount and channel used (branch, internet banking, mobile banking, etc.). Some banks offer free NEFT transactions for certain customer segments.
  6. Advantages:
    • Convenience: NEFT provides a convenient way to transfer funds electronically, allowing customers to initiate transactions from anywhere, anytime.
    • Widely Accepted: NEFT is widely accepted by all banks in India, making it a reliable payment option for various purposes.
    • Secure: NEFT transactions are processed through secure networks, ensuring the confidentiality and integrity of the transferred funds.
    • Cost-Effective: NEFT transaction fees are relatively lower compared to other electronic payment methods, making it cost-effective for customers.
  7. Participant Banks:
    • NEFT is available to all banks operating in India that are participants in the NEFT network, including public sector banks, private banks, foreign banks, cooperative banks, and regional rural banks.

It’s important to note that the NEFT system and its processes are subject to periodic updates and changes based on the policies and guidelines issued by the RBI. Customers should refer to their respective banks for the most up-to-date information on NEFT services, transaction limits, fees, and any specific requirements.