Internal Money Transfer

In the previous post, we learnt about the Mode of Remittances in Banking

Let’s explore Some Modes of Internal Money Transfer

Consumers can use various ways to transfer money within the country. These are broadly classified as Demand Drafts/ Banker's Cheques /Pay Orders or electronic or online mode like ECS, NEFT, RTGS and IMPS.

Demand Drafts – A bank draft or demand draft is an order from one branch of a bank to another branch of the same bank to pay a specified sum of money to the person named therein or to his order. A person who wants to send money can buy a draft by paying the required amount to a bank and send to another who can encash it in his place. Banks issue drafts for a nominal commission. The purchaser of the draft need not to be a customer or account holder of the bank. A bank draft is a negotiable instrument and has all the attributes of a bill of exchange, such as an instrument in writing, containing an unconditional order, signed by banker. Demand drafts are also known as Banker’s cheque or Pay Order.

NEFT - National Electronic Funds Transfer (NEFT) is a nation-wide centralised payment system owned and operated by the Reserve Bank of India (RBI). It is 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. An individual / firm / corporate willing to transfer funds through NEFT can use the internet/mobile banking facility offered by his/her bank for initiating online funds transfer request. The remitter has to provide details of beneficiary such as, name of the beneficiary, name of the bank branch where the beneficiary has an account, IFSC of the beneficiary bank branch, account type and account number, etc. for addition of the beneficiary to his/her internet/mobile banking module. Upon successful beneficiary addition, the remitter can initiate online NEFT funds transfer by authorizing debit to his/her account. Alternatively, the remitter can also visit his/her bank branch for initiating NEFT funds transfer through branch/off-line mode. The customer has to fill-in the beneficiary details in NEFT application form available at the bank branch and authorizes the branch to debit to his/her account to the extent of the amount requested in NEFT application form. The originating bank prepares a message and sends the message to its pooling centre, also called the NEFT Service Centre. The pooling centre forwards the message to the NEFT Clearing Centre, operated by the RBI, to be included for the next available batch. The Clearing Centre sorts the funds transfer transactions beneficiary bank-wise and prepares accounting entries to receive funds from the originating banks (debit) and give the funds to the beneficiary banks (credit). Thereafter, bank-wise remittance messages are forwarded to the beneficiary banks through their pooling centre (NEFT Service Centre). The beneficiary banks receive the inward remittance messages from the Clearing Centre and pass on the credit to the beneficiary customers’ accounts.

RTGS - The acronym 'RTGS' stands for Real Time Gross Settlement, which can be explained as a system where there is continuous and real-time settlement of fund-transfers, individually on a transaction by transaction basis (without netting). 'Real Time' means the processing of instructions at the time they are received; 'Gross Settlement' means that the settlement of funds transfer instructions occurs individually. The RTGS system is primarily meant for large value transactions. The minimum amount to be remitted through RTGS is ₹ 2,00,000/- with no upper or maximum ceiling. The RTGS service window for customer transactions is available to banks from 7 am to 6 pm on a working day, for settlement at the RBI end. However, the timings that the banks follow may vary from bank to bank. The procedure to conduct RTGS is same as that of NEFT except for the difference in capping of amount and time.

ECS - ECS or Electronic Clearing Service is an electronic mode of payment / receipt for transactions that are repetitive and periodic in nature. ECS is used by institutions for making bulk payment of amounts towards distribution of dividend, interest, salary, pension, etc., or for bulk collection of amounts towards telephone / electricity / water dues, cess / tax collections, loan installment repayments, periodic investments in mutual funds, insurance premium etc. Essentially, ECS facilitates bulk transfer of monies from one bank account to many bank accounts or vice versa. ECS includes transactions processed under National Automated Clearing House (NACH) operated by National Payments Corporation of India (NPCI).

In next post, we will understand about the various Modes of International Money Transfer.