L10

Electronic fund transfer

 Learning outcomes
• Familiarity with EFT system
• Exposure of advantages of the online banking
 Important news
• https://economictimes.indiatimes.com/indust
ry/banking/finance/banking/karnataka-bank-l
aunches-all-in-one-swiping-machine-for-msme
-customers/articleshow/86035664.cms
• https://economictimes.indiatimes.com/indust
ry/banking/finance/banking/mastercard-ban-r
bl-bank-restarts-credit-card-issuances-with-riv
al-visa/articleshow/86224750.cms
 MCQs
• How do you do banking transactions mostly:
a. Online banking
b. Mobile banking
c. Pay apps
d. By visiting to bank branch
 MCQs

• Which mode of banking transactions is best

one:
a. Online banking
b. Mobile banking
c. Pay apps
d. By visiting to bank branch
 Video
• https://www.youtube.com/watch?v=oADxUX4
STjE
 Internet banking
• It is the system that provides the facility to the customer to
conduct the financial and non-financial transactions from his net
banking account.
• The user can transfer funds from his account to other accounts of
the same bank/different bank using a website or an online
application. The customer uses a resource and a medium to
conduct financial transactions.
• The resource that a customer uses might be an electronic device
like a computer, a laptop, or a mobile phone. The internet is the
medium that makes the technology possible.
• The facility of internet banking is provided through banks and the
customer must be an account holder with any bank to get the
facility available for him/her.
 Applications of Internet
• The customer can view account statements.
• The customer can check the history of the transactions for a
given period by the concerned bank.
• Bank, statements, various types of forms, applications can
be downloaded.
• The customer can transfer funds, pay any kind of bill,
recharge mobiles, DTH connections, etc.
• The customer can buy and sell on e-commerce platforms.
• The customer can invest and conduct trade.
• The customer can book transport, travel packages, and
medical packages.
 MCQ
• The resource for online banking transactions
used by the customer can be
a. Computer,
b. Laptop
c. Mobile -phone
d. All of the above
 MCQ
• The resource for online banking transactions
used by the customer can be
a. Computer,
b. Laptop
c. Mobile -phone
d. All of the above
 Advantages of Internet Banking
• The customers get permanent access to
his/her bank anytime and anywhere.
• Transactions are safe and highly secure.
• Immediate funds transfer helps the user in
time of urgent need.
• It saves valuable time of the users.
 Disadvantages
• Internet connectivity
• Technology know how
• Costly
 Content
• Commercial Banking Operations: Payment and
settlement system-
1. New age clearing and New age payment,
2. RTGS,
3. SWIFT,
4. NEFT,
5. KYC Norms and
6. Anti– Money Laundering,
7. FEMA
 Payment system
• A payment system is a mechanism that
facilitates transfer of value between a payer
and a beneficiary by which the payer
discharges the payment obligations to the
beneficiary
 What is Clearing?

• The process in which reserves or funds are

transferred among banks to settle the accounts
of cheque written on one account and
deposited into another.
 Types of clearing

• Inward Clearing
– Inward clearing is where the Bank customer draws cheque in the favor
of a non- Banker customer.
– The inward clearing process decreases the deposits of the bank.

• Outward Clearing
– Outward clearing means cheques drawn by non-customers
in favor of the Banks customers and deposited in one of the branches of
the Bank.
 Cheque truncation

• Cheque truncation is the conversion of a

physical Cheque into a substitute electronic
form for transmission to the paying bank.
• Cheque truncation eliminates cumbersome
physical presentation of the cheque and saves
time and processing costs.
 Cheque truncation system

• Cheque Truncation System (CTS) or Image-based Clearing System (ICS), in

India, is a project undertaken by the Reserve Bank of India – RBI, for faster
clearing of cheques.
• CTS is basically an online image-based cheque clearing system where cheque
images are captured at the collecting bank branch and transmitted
electronically.
• Truncation means, stopping the flow of the physical cheques issued by a
drawer to the drawee branch.
• The physical instrument is truncated and an electronic image of the cheque is
sent to the drawee branch along with the relevant information like the MICR
fields, date of presentation, presenting banks etc.
 Benefits of CTS

Benefits of CTS
Benefits to You to You and Benefits to Your Bank
Your Bank
• No fear of loss of cheque in transit • Reduction in cost of transit and errors
• Faster credit of funds to your account due to manual work
• Quicker clearance • Shorter clearing cycle
• More secure; lesser chances of fraud • Operational efficiency
• Multi-city cheques could be cleared on • Reduction in risks involving paper
the same day sharing
 Core Banking Solution

• Core banking is a banking service provided by a group of networked

bank branches where customers may access their bank account and
perform basic transactions from any of the member branch offices.
• The word Core in Core Banking Solutions( CBS) stands for Centralized
Online Real-time environment.
• Core Banking is normally defined as the business conducted by a
banking institution with its retail and small business customers.
• The core banking services rely heavily on computer and network
technology to allow a bank to centralize its record keeping and allow
access from any location.
 Electronic fund transfer

• Electronic funds transfer (EFT) is the electronic exchange, transfer of money from one
account to another, either within a single financial institution or across multiple institutions,
through computer-based systems.
• EFT can be used through various ways :
– Using a Credit or Debit card- Using this method, money is transferred electronically
from your account to the seller's account.
– Online Bill payment- Often referred by many as online banking, this has become very
popular as a quick and easy way to pay monthly bills
– Direct Debit- Individuals can set up a recurring schedule and payment instructions for
companies to automatically pull money from their bank account to pay for bills or
services.
– Direct Deposit- This form of employee payment is now the preferred way to get paid
from your employer
 Electronic Clearing Service (ECS)

• Electronic Clearing Service (ECS) is a retail payment system that can be used
to make bulk payments/receipts of a similar nature especially where each
individual payment is of a repetitive nature and of relatively smaller
amount.
• This facility is meant for companies and government departments to
make/receive large volumes of payments.
• The ECS is further divided into two types –
– ECS (Credit) to make bulk payments to individuals/vendors and
– ECS (Debit) to receive bulk utility payments from individuals

• It is a system of electronic funds transfers from one account to another bank

account.
 Cont…

• Magnetic Ink Character Recognition code (MICR)

• National Electronic Fund Transfer (NEFT)
• Real Time Gross Settlement (RTGS)
• Difference between NEFT and RTGS
• Point of Sale (POS)
• Society for Worldwide Interbank Financial Telecommunication
(SWIFT)
 Magnetic Ink Character Recognition code

• MICR code means Magnetic Ink Character Recognition code which contains 9 digits, like
380002006 appearing at the bottom of the cheque, following the cheque number.
• Each Bank Branch has a unique MICR code.

1. First three digits of the code display the city and is derived from first 3 character of PIN
(Postal Index Number) mentioned in the address of the Branch. For example PIN code of
Hyderabad, Madhapur is 500081; therefore first three digits of MICR code will be 500.

2. Digit 4, 5&6 display the bank codes allotted to each bank by Reserve Bank of India. For
example State Bank of India has been allotted “002”. Six digits of MICR code will become
500002

3. Digit 7, 8 and 9 display the Bank Branch Codes allotted to each branches of bank. For
Example SBI, Madhapur , Hyderabad 500081 branch has been allotted code no. 072.
 MICR-cont…

Therefore 9 digits of MICR code of State Bank

of India, Madhapur(Hi Tech), Hyderabad-
500081 will be 500-002-072 i.e.
• 500 is the City PIN Code +

• 002 is the Bank Code +

• 072 is the Branch Code

Example
 Inter Bank Transfer?
• Inter Bank Transfer enables electronic transfer
of funds from the account of the remitter in
one Bank to the account of the beneficiary
maintained with any other Bank branch.
• There are two systems of Inter Bank Transfer –
RTGS and NEFT.
• Both these systems are maintained by
Reserve Bank of India
 Video
• https://www.youtube.com/watch?v=IKTKbikO
_L8
• https://www.youtube.com/watch?v=gG5kLlfZc
ik
 National Electronic Fund Transfer

• National Electronic Funds Transfer (NEFT) is a nation-wide

payment system facilitating one-to-one funds transfer.
• Under this Scheme, individuals, firms and corporates can
electronically transfer funds from any bank branch to any
individual, firm or corporate having an account with any
other bank branch in the country
• This is a "net" transfer facility which is executed in hourly
batches resulting in a time lag.
 NEFT………

• Even such individuals who do not have a bank account (walk-in

customers) can also deposit cash at the NEFT-enabled branches
with instructions to transfer funds using NEFT. However, such
cash remittances will be restricted to a maximum of Rs.50,000/-
per transaction.
• Such customers have to furnish full details including complete
address, telephone number, etc. NEFT, thus, facilitates
originators or remitters to initiate funds transfer transactions
even without having a bank account.
 NEFT Timing
NEFT Timing on
Name of the Bank From Monday to
Saturday

NEFT Timings
Friday

8:00 am to 7:00 8:00 am to 1:00

State Bank of India
pm pm

8:00 am to 6:30 8:00 am to 6:30

HDFC Bank
pm pm

8:00 am to 6:30 8:00 am to 6:30

ICICI Bank
pm pm

8:00 am to 7:00 8:00 am to 1:00

CitiBank
• At present from 8.00 a.m. to pm pm
7.00 p.m. on all weekdays Kotak Mahindra 8:00 am to 6:00 8:00 am to 12:00
• Bank pm pm
At present from 8.00 a.m. to
1.pm on Saturdays Bank of Baroda
9:00 am to 6:45 9:00 am to 6:45
pm pm

8:00 am to 7:00 8:00 am to 1:00

Yes Bank
pm pm

8:00 am to 6:30 8:00 am to 6:30

Union Bank
pm pm

8:00 am to 7:00 8:00 am to 1:00

Punjab National B
ank pm pm
 National electronic fund transfer- process

• Step-1 : Customer fills an application form providing details of the

beneficiary (like name, bank, branch name, IFSC, account type
and account number) and the amount to be remitted.
• Step-2 : The originating bank branch prepares a message and
sends the message to its pooling centre (also called the NEFT
Service Centre).
• Step-3 : The pooling centre forwards the message to the NEFT
Clearing Centre (operated by National Clearing Cell, Reserve Bank
of India, Mumbai) to be included for the next available batch.
 video
• https://www.youtube.com/watch?v=s5HrEyES
tYE
How Electronic Payments Work

• https://www.youtube.com/watch?v=LD7yMqc
bEOs
Payment Processing: Industry Overview
 National electronic fund transfer- process…… cont..

• Step-4 : The Clearing Centre sorts the funds transfer transactions

destination bank-wise and prepares accounting entries to
receive funds from the originating banks (debit) and give the
funds to the destination banks(credit). Thereafter, bank-wise
remittance messages are forwarded to the destination banks
through their pooling centre (NEFT Service Centre).
• Step-5 : The destination banks receive the inward remittance
messages from the Clearing Centre and pass on the credit to the
beneficiary customers’ accounts.
 Benefits of NEFT

• Faster – Its faster and more convenient than sending

Demand Drafts / Cheques / Telegraphic Transfers.
• Easier – Forget long queues and time-consuming DDs,
cheques and pay orders! No need to visit the bank
branch and search for a courier.
• Reach – No Geographical limitations within India as long
as it is a participating bank in the RBI's RTGS/NEFT
system.
 RTGS guidelines
• https://m.rbi.org.in/Scripts/FAQView.aspx?Id=
65
 Real time gross settlement

• RTGS stands for Real Time Gross Settlement.

• Transfer of money from one bank to another on a ‘real time’ basis and on
‘gross’ basis.
• Real time means payment transaction is not subjected to any waiting period
• Gross settlement means the transaction is settled on one to one basis
without bunching with any other transaction.
• The RTGS system is primarily for large value transactions.
• The minimum amount to be remitted through RTGS is Rs. -------------( as per
guidelines)
• There is no upper ceiling for RTGS transactions
 RTGS benefits receiving timing
• Under normal circumstances the beneficiary
Bank branch receives the funds in real time as
soon as funds are transferred by the remitting
Bank. The beneficiary Bank has to credit the
beneficiary’s account within two hours of
receiving the funds transfer message.
 Mobile- banking or Tele- banking
• Mobile banking is the act of making financial
transactions on a mobile device (cell phone,
tablet, etc.).
• Advantages- ability to bank anywhere and at
any time.
• Disadvantages- security concerns and a
limited range of capabilities when compared
to banking in person or on a computer.
 Advantages of mobile banking
• Time saving
• Fast access
• Quick transfers
• Easy to use
• Anywhere access
 Disadvantages
• Technology knowledge
• People around must no how to use mobile
banking
• Wrong transactions are creating stress
 Online sites
• https://www.onlinesbi.com/personal/neft_rtg
s_faq.html

• https://www.onlinesbi.com/personal/rinb_vid
eos.html