National Electronic Fund Transfer
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National Electronic Fund Transfer (NEFT) is an online system for transferring funds of financial institution, especially banks in India. This facility is used mainly to transfer funds below Rs 100000.
The banking regulator, the Reserve Bank of India has instructed banks that they should not use the instant funds transfer system, known as the Real Time Gross Settlement (RTGS), for an amount below Rs.1 lakh. The new rule would come into effect from January 1, 2007. For small transactions, RBI has asked banks to offer National Electronic Fund Transfer (NEFT) which provided T+0 and T+1 settlement system (depending on the time a customer gives instruction to the bank for transferring the fund).
The key difference between RTGS and NEFT is that while RTGS in on gross settlement basis, NEFT is on net settlement basis. Besides, RTGS facilitates online transfer, while NEFT involves four settlement cycles a day 9.30 am, 10.30 am, 12 pm and 4 pm. Thus if a customer has given instruction to its bank to transfer money through NEFT to another bank in the morning hours, money would be transferred the same day, but if the instruction is given later during the day, money would be transferred next day.
However, RTGS facility is available in over 25000 branches, while NEFT is available in about 37000[1] 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. RBI has instructed banks that all branches which are RTGS enabled should also provide NEFT by December 2006. Sources said that RBI also had planned to discontinued EFT-Electronic funds Transfer. This is because EFT is available only in 15 locations where RBI has its clearing house.
As of now, customers can access the RTGS facility only up to 3 pm and inter-bank transactions are possible up to 5 pm.
[edit] History
The NEFT system went live with effective from November 21, 2005. NEFT was set to cover all banks which were participating in the Special Electronic Funds Transfer (SEFT) clearing. NEFT was made on the Structured Financial Messaging Solution (SFMS) platform and is Public Key Infrastructure (PKI) enabled.
RBI made it mandatory to migrate all the SEFT banks to NEFT by December 15, 2005. As NEFT would be serving all the bank customers using SEFT, the SEFT system was discontinued from January 1, 2006. Banks which fulfill the eligibility criteria for participation in RTGS were invited by RBI to participate in the NEFT. [2]
