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Tuesday, January 31, 2012

What is National Electronic Funds Transfer ( NEFT ) ?

 
   The 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 transfer funds from any bank to an individual, firm or corporate having an account with any other bank in the country. NEFT is still not being used on a large scale. Increased use of NEFT is expected to bring down the chances of fraud too.

NEFT offers many advantages over the other modes of funds transfer:

The remitter need not send a cheque or demand draft to the beneficiary
The beneficiary need not visit his bank to deposit the paper instrument
The beneficiary need not be apprehensive of loss or theft of the instrument or the likelihood of fraudulent encashment

Ø       It is cost effective

Ø       There is a credit confirmation of remittance sent by SMS or email

Ø       The remitter can initiate the remittance from his home or place of work using Internet banking

Ø       There is hardly any time taken to transfer funds to the beneficiary account in a secure manner


With the gaining popularity of Internet banking, transfer of funds through NEFT is also becoming popular. In case of NEFT, the transferor can transfer the funds to the account of the payee electronically, without visiting the bank or issuing a cheque. The mode is fast, convenient, and cost effective. It saves the time and effort of both the payer and payee.


   However, there have been a few issues in the process. The Reserve Bank of India (RBI) has been trying to ease out the problems. Taking note of some banks not following rules of sending confirmations of payments made through NEFT, the RBI has directed lenders to put in place a system to issue the receipts. It has asked banks to generate confirmations of NEFT payments. All banks need to have systems to ensure a confirmation is sent to the originator (sender). Such confirmation messages should be sent as soon as the beneficiary account is credited. It should be sent before the end of the day under any circumstances.


   According to the RBI, in case of a large number of banks, the percentage of positive confirmations sent vis-a-vis the inward messages received was lower than 10 percent. Positive confirmation is a unique feature of NEFT and has played a major role in popularising the system among users. Not adhering to instructions in this regard will undermine the customer service efficiency of the system.


   In addition, the RBI has directed banks to adhere to norms under which they have to pay a penalty in case of a delay in crediting funds sent through the NEFT system to the beneficiary account or in returning the uncredited amount to the remitter. Banks are required to pay a penal interest at the current RBI LAF repo rate plus two percent for the period of delay or till the date of refund to the affected customers.


   These measures were instituted with the objective of enhancing customer service and efficiency parameters of the system in view of the large scale growth in electronic payment transactions.


   Further, banks are required to establish dedicated customer facilitation centres (CFCs) to handle customer queries and complaints regarding NEFT transactions. The contacts details of CFCs are available on websites of banks as well as the website of the RBI for easy availability to the customers. CFCs are to be the first point of contact for aggrieved customers. Banks need to keep the contact details of their CFCs updated at all times and also advise changes to the RBI. Banks also need to ensure that calls made and emails sent to CFCs are promptly attended to.


   These measures are meant to make NEFT more popular among people.

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