NEFT (National Electronic Fund Transfer) : Coverage, Advantages

NEFT: With the availability of integrated technology consisting of computers and communication facilities, distances no longer remain a constraint in providing better customer service and expediting the funds transfer mechanism.

Raju Choudhary


NEFT: With the availability of integrated technology consisting of computers and communication facilities, distances no longer remain a constraint in providing better customer service and expediting the funds transfer mechanism. EFT facilitates quick movement of funds through electronic media. EFT mechanism involving inter-bank funds settlement at the national level has come up only recently as an aftermath of the recommendations of the Saraf Committee on technology issues in the payment and settlement system constituted by the RBI in 1994.

History of NEFT

The basic infrastructure at various branches/offices, at present, however, is not capable of supporting such system, which is dependent upon sophisticated communication systems integrated with computers. Due to these factors, the EFT system introduced by RBI is largely built around the existing infrastructure for cheque clearing. The Saraf Committee had suggested a hybrid system, both paper and electronic media for message transmission. It had suggested that high value institutional funds transfer should be batched every hour. The batch system has since been implemented in 1996. The RBI acts as the service provider as well as the system regulator.

Reserve Bank of India has introduced a system called ‘The Reserve Bank of India National Electronic Funds Transfer System’ which may be referred to as ‘NEFT System’ and shall include the set of procedural guidelines detailed hereunder, for the participating banks and institutions with the required computer system and communication network through which funds transfer operation would take place.

Coverage :

To facilitate quick transfer of NEFT messages, it is essential that only networked branches of banks are part of the systems. Banks’ own networks could be used for inter-branch communication.

Characteristics :

NEFT transactions may be made for amounts inclusive of paisa component. There is no upper value limit for putting through an individual NEFT transaction.

Process Flow :

The parties to a funds transfer under the NEFT system are the sending bank, the sending NEFT service centre, the NEFT clearing centre, the receiving service centre and the beneficiary branch.

Role of Customer :

A bank customer (i.e. sender or originator) willing to avail of the remittance facilities offered by a sending bank shall submit a NEFT application form authorising the sending bank to debit the sender’s account and transfer funds to the beneficiary specified in the NEFT application form.

Role of Bank :

The sending bank shall prominently display at its premises the cut-off time schedules up to which it shall receive the National Electronic Fund Transfer application forms from its customers. Sending bank branch would prepare the ‘Structured Financial Messaging System’ (SFMS) message as and when the application for the funds transfer is received and sends the message to sending service centre, for processing/data upload.

The sending service centre shall transmit the NEFT SFMS message to the NEFT clearing centre by using the communication network designated by Reserve Bank.

The SFMS messages would be transmitted to national clearing centre.

Role of Clearing Centre :

The National Clearing Cell (NCC), of the RBI at Free Press House, Nariman Point, Mumbai, will be the data processing NEFT clearing centre. SFMS messages generated for the banks will be transmitted to the receiving service centre of each of the receiving banks using SFMS after data validation at receiving NEFT Clearing Centre.

Role of Receiving Bank :

On receipt of the NCC SFMS message, the receiving National Electronic Fund Transfer service centre shall process these files and forward them to the destination branches using SFMS. Alternatively, the receiving NEFT service centre may use the ‘Straight through Processing Interface’ (STPI) available in SFMS and upload these SFMS messages to their internal banking solution directly, to give the credits to the beneficiary account centrally. The beneficiary branches would make payment to the beneficiaries instantly on the same day by crediting the specified account of the beneficiary or otherwise placing funds at the disposal of the beneficiary.

Acknowledgement for NEFT :

No Acknowledgments are envisaged under NEFT scheme. A message that is not returned unaffected before the next settlement day is treated to have been completed and credit afforded to the beneficiary’s account by the beneficiary branch. It is, therefore, vital that unaffected credits are re-transmitted back as fresh National Electronic Fund Transfer transactions immediately.

Sender to be Advised in Certain Cases :

If the beneficiary specified in the sender’s payment order fails to get payment through the NEFT system for some valid reasons, the sender shall be informed immediately after the sending bank, gets the returned NEFT. The sending bank shall also arrange to make payment to the sender by crediting the account of the sender or otherwise placing funds at the disposal of the sender.

Beneficiary Bank to Advise Beneficiary of the Payment :

After crediting the account of the beneficiary, the beneficiary bank shall advise the beneficiary of the payments made. The statement of account, passbook entry or any online messaging system shall indicate briefly the source of funds as well. In case of a holiday at beneficiary branch, they have to effect the credit as on the same day or latest at commencement of business on the next working day.

Settlements for NEFT Transaction :

Every participating bank shall open and maintain in the National Electronic Fund Transfer centre, Mumbai, a settlement account for settlement of payment obligations arising under the funds transfer executed under the NEFT system.

Advantages :

1) Efficient Service : NEFT facilitates an efficient, secure, economical, reliable and expeditious system of funds transfer and clearing in the banking sector throughout India, and

2) Freedom from Paper Handling : NEFT relieves the stress on the existing paper based funds transfer and clearing system.

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