Payment And Settlement Systems In India
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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 transfer modes that operate on a deferred net settlement (DNS) basis 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.
In RTGS, transactions are processed continuously throughout the RTGS business hours.
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
9:00 hrs
12:00hrs
Day
Start Time
End Time
Monday to Friday
8:00 hrs
16:00 hrs
Saturday
8:00 hrs
11:30hrs
Saturday
NEFT
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.
NEFT
RTGS
Amount
Service Charge
Upto Rs. 1 Lakh
Rs. 5
Rs. 1 Lakh & above
Rs. 25
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 !
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 transfer modes that operate on a deferred net settlement (DNS) basis 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.
In RTGS, transactions are processed continuously throughout the RTGS business hours.
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
9:00 hrs
12:00hrs
Day
Start Time
End Time
Monday to Friday
8:00 hrs
16:00 hrs
Saturday
8:00 hrs
11:30hrs
Saturday
NEFT
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.
NEFT
RTGS
Amount
Service Charge
Upto Rs. 1 Lakh
Rs. 5
Rs. 1 Lakh & above
Rs. 25
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 !
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