Posted in Finance Articles, Total Reads: 1415
, Published on 18 January 2016
The difference between NEFT and RTGS in the area of banking is elaborately covered in this article. The National Electronic Fund Transfer (NEFT) and Real time gross settlement (RTGS) are the parts of Indian electronic payment system. These are special systems which allow an individual or corporation and firm to transfer the funds electronically from accounts to other bank’s account in Nation or outside. Let’s discuss these two methods of fund transfer in details so that we can differentiate about two methods.
Indian Payment system
National Electronic Fund Transfer (NEFT)
NEFT is the electronic funds transfers system from one financial institution or branches to another within the nation i.e. India. Under this system individual, firms, and corporates can electronically transfer funds from any branch to any individual, firms, or corporates having an account with any other bank branch in the country. To participate in NEFT system the banks should become the members of the RTGS. The RBI (reserve bank of India) plays a mediatory role to operate the system. Every bank must have account in the NEFT system and will get login ID to access it. Through login ID the banks can deposit the amount to NEFT account with detailed information about the account holders or beneficiary so that NEFT system transfers the fund to concern bank in their customer account. This system is specially for small amount transferring. Most important thing is that the beneficiary should have the IFSC (Indian financial accounts code) of the bank branch where the beneficiary account is located. Settlement of funds take place in batches based on the RBI guide lines.
Real Time Gross Settlement System (RTGS)
The Real Time Gross Settlements system is also an online funds transfer system by which funds are transferred from one bank to another banks in continuous real time and gross basis without netting within or from outside the nation. The netting means consolidating the value of two or more transactions in order to create the singe value; real time refers the process of instructions that are executed at the time when they are received and there is no lag time between the instruction and execution. On the other hand, gross settlement means the settlements of the funds transfer instructions occur individually (on an instruction by instructions basis). The settlements of the funds actually take place in the book of RBI. This system is maintained by the RBI and is available during the workings days for a given number of hours. Banks using RTGS need to have core banking capabilities to be able to initiate and process an RTGS. RTGS involves larger amounts of cash, basically only funds above Rs.2 lakh may be transferred using this system. Once the transaction is completed it treated as the final and irrevocable. RTGS is suitable for the large amount transfers and main advantage of RTGS is the people and business houses can transfer money from outside the India also.
The difference between RTGS and NEFT
Online transferring system from one financial institution to another within the nation (India).
Continuous settlement of funds transfer individually on an order by order basis (without netting)
Settlement of funds transfer instruction occurs individually
Is operated in hourly batches
For larger fund transfers
For relatively small transfers
up to 2-5 lakh –Rs 25-30
above 5 lakh-Rs50-55(lower charge for first half of day)
upto10000-Rs.2.5, above 10000 to 1 lakh-Rs5,1 to 2 lakh Rs15,above 2lakh-Rs.25
Minimum: Rs. 2 lakh,
Maximum: no limit
Minimum: no limit,
Maximum: no limit
Monday to Friday: 9 am to 4:30 pm
Saturday: 9 am to 1:30 pm
Monday to Friday: 8 am to 6:30 pm
Saturday: 8 am to 12:30 pm
Works in continuous period, hence it’s faster
Works in batches, hence its slower
It’s a large value payment system
It’s a retails payment system
Similarly, we can further compare the current scenario of both the NEFT and RTGS in the Indian banking payment system. In the below table, data from the first six months of 2015 has been analysed in order to know the trend of NEFT and RTGS but due to the lack of availability of the data I have taken only first six month data so it may not be given the clear picture of the payment scenario.
Amount (Rs. bn)
Source: RBI monthly report
In the above table the total numbers of transactions and total amount of funds which have been transferred in first 6 months of 2015 through the RTGS and NEFT system have been indicated. From the above table it can be deduced that in March 2015, there is an increase in the volume and amount of NEFT fund transfers (106 mn and Rs.7173.09 respectively). Similarly there is also an increase in volume and amounts of RTGS funds transfers (9672.739 mn andRs.87421.48 bn respectively) in the same month. As we know that the March is the end of the financial year there is huge volume of financial transaction which happens through the online funds transfer system. Similarly, there is also increased usage of NEFT and RTGS (amount as well as number of transactions) in the month of May and June 2015.
Finally, we can say that RTGS is better than NEFT because through the RTGS we can transfer the large volume of amount from inside as well as outside the nation without netting and works in real time basis so its takes very lesser time to transfer the funds. In above table has shown clearly that no of transaction and funds amount are higher than the NEFT system’s volume and amount.
This article has been authored by Jagat Kadara from SIBM Pune