Electronic Fund Transfer (EFT)

Ranjeet R Iyer, MBA-1(B)

Topics to be discussed
EFT ACS NEFT RTGS and SWIFT

Ranjeet R Iyer, MBA-1(B)

EFT- Introduction
Its the electronic exchange or transfer of money from one account to another, either within a single financial institution or across multiple institutions, through computer-based systems. Transactions are processed by the bank through the Automated Clearing House (ACH) network, the secure transfer system that connects all financial institutions in the US.
Ranjeet R Iyer, MBA-1(B)

Automated Clearing House (ACH)

Automated Clearing House (ACH) is an electronic network for financial transactions. ACH processes large volumes of credit and debit transactions in batches. Businesses increasingly use ACH online to have customers pay, rather than via credit or debit cards.

Ranjeet R Iyer, MBA-1(B)

Why ACH?
To accelerate cash flow. Offering a new payment. To save time. ACH/EFT is reliable, accurate and most important-confidential.
Source: http://www.wiziq.com/tutori al/19944-ACH-AUTOMATEDCLEARING-HOUSE

Ranjeet R Iyer, MBA-1(B)

ACH Process
1. An ACH transaction starts with a receiver authorizing an originator to issue ACH debit or credit to an account. 2. A receiver is the account holder that grants the authorization. 3. An originator can be a person or a company. 4. A buys a shirt at Bs Boutique Shop with a cheque for $250.
Ranjeet R Iyer, MBA-1(B)

ACH Process (contd)

5. A is the receiver. Her bank account will receive the order to take $250 out of her account. 6. Bs shop is the originator. 7. The cheque, signed by A , authorizes B to originate the ACH transaction. The cheque has A's routing number and account number.
Ranjeet R Iyer, MBA-1(B)

ACH Process (contd)

After authorisation, the Originator (B) then creates an ACH entry to be given to an Originating Depository Financial Institution (ODFI), which can be any financial institution that does ACH origination. This ACH entry is then sent to an ACH Operator that passes it on to the Receiving Depository Financial Institution (RDFI), where the Receiver's (As) account is debited.
Ranjeet R Iyer, MBA-1(B)

Ranjeet R Iyer, MBA-1(B)

Source: http://www.phoenixhecht.com /treasuryresources/ach.html

Ranjeet R Iyer, MBA-1(B)

Source: http://www.phoenixhecht.com /treasuryresources/ach.html

Ranjeet R Iyer, MBA-1(B)

Source: http://www.phoenixhecht.com /treasuryresources/ach.html

EFT in Indian context

EFT is performed in India through 2 process viz. 1. NEFT- National Electronic Funds Transfer 2. RTGS- Real Time Gross Settlement

Ranjeet R Iyer, MBA-1(B)

NEFT
It is a nation-wide payment system facilitating one-to-one transfer. Individuals, firms and corporate can transfer funds electronically within the country through bank branches participating in the Scheme. For being in this Scheme, a bank branch should be NEFT enabled.
Ranjeet R Iyer, MBA-1(B)

NEFT (contd.)
Individuals, firms having bank accounts can transfer funds through NEFT. Even individuals without having bank accounts can use NEFT. But in both the cases, the receiver of the money should have a bank account in an NEFT enabled branch!

Ranjeet R Iyer, MBA-1(B)

NEFT (contd.)
The maximum amount per transaction is limited to Rs.50,000/-. However there is no upper or lower limit for the amount transferred. NEFT operates in hourly batches: a. 11 settlements from 9AM-7PM on weekdays. b. 5 settlements from 9AM-1PM on Saturdays.
Ranjeet R Iyer, MBA-1(B)

NEFT process
1
Customer requests the originating bank to debit his account of Rs.xxxxx/-

Originating bank prepares message and send to its pooling centre i.e. NEFT service centre.

Pooling centre forwards the message to NEFT, Clearing Cell, RBI, Mumbai to be included in the next batch.

Ranjeet R Iyer, MBA-1(B)

NEFT process (contd.)

4
Clearing cell sorts transactions destination bank-wise and debits the amount from originating banks and credits the amount of destination banks.

Remittance messages are sent to destination banks through pooling centre.

Destination banks receive the inward remittance and pass the credit to the beneficiaries accounts.

Ranjeet R Iyer, MBA-1(B)

IFSC
Stands for Indian Financial System Code. It is an alpha-numeric code that uniquely identifies bank-branch participating in NEFT Scheme. 11 digit code with first 4 alpha characters representing the bank and last 6 numeric characters representing the branch. 5th character is 0 (zero).
Ranjeet R Iyer, MBA-1(B)

IFSC (contd.)
E.g.: IFSC code of SBI, Thakur Complex, Kandivali, Mumbai is:

SBIN0030366
Bank name

Branch code

Ranjeet R Iyer, MBA-1(B)

RTGS
Stands for Real Time Gross Settlement. It is continuous (real-time) settlement of funds transfer mechanism. Real Time means processing the request at the time they are received. Gross Settlement means settlement of funds occurring individually on instruction by instruction basis.
Ranjeet R Iyer, MBA-1(B)

RTGS (contd.)
RTGS is primarily meant for large volume transactions. Minimum amount to be remitted is Rs. 2 lacs and no upper limit. Amount is credited to the beneficiarys account within 2 hours of receiving the funds transfer.

Ranjeet R Iyer, MBA-1(B)

RTGS (contd.)
RTGS window: a. 9 AM-4.30 PM during weekdays. b. 9 AM-1.30 PM on Saturdays. RTGS charges is based on the slab under which the amount falls + service tax as applicable for that slab.
Ranjeet R Iyer, MBA-1(B)

NEFT v/s RTGS

NEFT operates in batches where as RTGS on real time. RTGS doesnt accept any transaction below Rs.2 lacs where as NEFT do accept minimum amounts. NEFT is based on cut-off time whereas RTGS is processed continuously.

Ranjeet R Iyer, MBA-1(B)

SWIFT
SWIFT stands for Society for Worldwide Interbank Financial Telecommunication. Operates a worldwide financial messaging network which exchanges messages between banks and other financial institutions. The majority of international interbank messages use the SWIFT network.
Ranjeet R Iyer, MBA-1(B)

SWIFT (contd)
SWIFT does not facilitate funds transfer, rather, it sends payment orders. These orders must be settled via correspondent accounts that the institutions have with each other. SWIFT is a cooperative society under Belgian law and is headquartered at Belgium.
Ranjeet R Iyer, MBA-1(B)

SWIFT (contd)
Bank wire transfers use the SWIFT mechanism. SWIFT is costlier than ACH and takes more time.

Ranjeet R Iyer, MBA-1(B)

Webliography
RBI website. Wikipedia. Random Google searches. Self knowledge.

Ranjeet R Iyer, MBA-1(B)