Electronic fund transfer
Banking operations over the years and decades have witnessed many changes and have been adopting from
time to time new innovations. The technological revolution especially in the Information and Technology front
has changed the functioning of banks. In today’s globalized competitive business environment banks are trying
to have the competitive edge by using the latest technology to cut down turnaround time, cut costs and increase
efficiency. “e Banking” through many innovative products and services has revolutionized banking operations.
Electronic Clearing System (ECS)
One of the earliest electronic forms of funds transfer is the Electronic Clearing System. ECS is a retail funds
transfer system to effect payments (utility bills, dividends, interest, etc) ECS helps corporates, government
departments, public sector undertakings, utility service providers to receive and/or pay bulk payments. ECS is
divided into ECS (credit) and ECS (debit)
ECS – important aspects/ features
On receipt of the required mandate, the funds (payments/ receipts) can be handled by a bank through ECS.
ECS (debit) is generally used by utility companies like electricity companies, telephone companies and other to
receive the bill payments directly from bank accounts of their clients. Instead of payment of utility bills by
means of cash or cheque payments, an individual or a company can make payment through ECS.
In case the company has the facility of payment through ECS, the client can give a mandate to the company to receive the utility bill amount from his bank account directly. The utility company (service provider) based on the ECS mandate given by the client, would advise the client’s bank to debit the bill amount to the client’s account on the
due date (or on a any date before the due date as per the client’s request) and transfer the amount to the
company’s own bank account. Similarly, ECS (Credit) can facilitate payment to various clients like dividend
warrants, maturity values of Annuities.
Real Time Gross Settlement (RTGS)
One of the important IT revolutions in Indian Banking Scenario was the implementation of the Real Time Gross
Settlement (RTGS) system by the Reserve Bank of India. With the changing scenario from manual environment
to electronic mode, banks started to use faster, safer and efficient methods to transfer funds.
In this regard, two important and popular electronic funds transfer systems are Real Time Gross System (RTGS)
and National Electronic Funds Transfer System (NEFT)
RTGS is an electronic payment system, where payment instructions are processed on a ‘continuous’ or ‘REAL
TIME’ basis and settled on a ‘GROSS’ or ‘individual’ basis without netting the debits against credits. In India,
RBI introduced this system and the system is functioning well. The payments so effected are ‘final’ and
The settlement is done in the books of the central bank (RBI). The RTGS system allows transfer of funds across banks on a real time (immediate) basis. Each participant bank needs to open a dedicated
settlement account for putting through its RTGS transactions. Not only does it allow transfer of funds, it also
reduces the credit risk. Both customers and banks can transfer funds monies the same day at regular intervals
within the banking hours.
RTGS: Special features:
(a) Real Time Gross Settlement helps banks to settle interbank and forex settlements
(b) It also helps banks in handling big ticket funds transfers
(c) Since RTGS it is routed through RBI platform, the credit risk is minimized (this is one of the main advantages
in settlement of funds)
(d) Unlike in case of cheque clearance, the drawer of the cheque cannot enjoy the float time (the date of issuance of cheque and the date on which it is received in inward clearing and debited by his banker)
However, in the case of RTGS, the remitter’s account is debited first and then only the funds are transferred
(e) If all relevant details such as the beneficiary’s name, account number, IFSC code of the receiving branch, name of the beneficiary bank, etc., are correctly furnished it would assist the remitting bank to effect the transfer quickly
(f) As the name RTGS suggests, the transfer mechanism works on real time and, therefore, the beneficiary branch/bank should receive the funds immediately. The beneficiary’s branch/bank should give credit to
the beneficiary’s account immediately or latest within 2 hours of receiving the funds transfer message.
However, in case the funds cannot be credited for any reason, such funds should be returned to the originating
branch within two hours. In such a situation, as soon as the money is returned, the remitting bank should reverse
the original debit entry in the client’s (remitter’s) account. This system is applicable between banks/branches who
are on Core Banking Solutions (CBS)
National Electronic Funds Transfer (NEFT)
NEFT is a system similar to RTGS with certain differences. RTGS handles big ticket transactions, whereas NEFT
handles smaller size transactions. Most branches are using this facility to transfer funds in an efficient manner.
Once the applicant for the transfer of funds furnishes full and correct details (correct account details means
correct name of the beneficiary, the correct account number, the branch and bank of the beneficiary, and the
correct IFS code, etc.) funds can be transferred to the beneficiary’s account by the remitting bank. Transfer of
funds through NEFT is safe, quick. It reduces the paper work and is cost effective.
NEFT is an innovative electronic media for effecting transfer of funds. Special features of NEFT are:
1. NEFT is a funds transfer system which enables a customer of a bank to transfer funds to another customer of another bank having account with any participating bank
2. NEFT allows both intra and inter-bank funds transfer within a city and across cities
3. Since it is in the form of e transfer, without any physical movement of instruments, funds can be transferred
4. The beneficiary customer gets funds in his account on the same day or at the earliest on the next day depending upon the time of settlement
5. Both the originating and destination bank branches should be on NEFT platform
6. The correct details of IFSC, beneficiary’s name, account numbers, etc., should be furnished to the originating bank.
7. The originating bank branch can keep track of the status of the NEFT transaction.
8. In case for any reason the destination branch is not able to afford credit to the beneficiary’s account, destination branch/bank have to return the funds to the originating bank within two hours of completion of the batch through which the transaction was processed
9. It is not only easy method of transfer of funds, but also enables the remitters to have user friendly and
cost effective transfer of funds
Indian Financial System Code (IFSC)
IFSC is an alpha-numeric code that identifies a bank-branch participating in the RTGS/NEFT system. IFSC has
11 digit code and the first four alpha characters represents the bank, the 5th code is 0 (zero), which is reserved for
future use and the last six digits are numeric characters represents the branch. Correct IFSC code is essential for
identifying the beneficiary’s branch and bank as destination for funds transfers. E.g. Syndicate Bank Cuffe Parade
Branch, Mumbai- SYNB0005087