Electronic fund transfer: net banking, NEFT, RTGS, IMPS

Detail

1. From cheques to electronic transfers

• Cheque
• A cheque is a written order to your bank to pay a named person from your account.

• It must be physically presented and cleared, so the money takes time to move.

• Electronic fund transfer (EFT)

• In EFT, money moves from one bank account to another through computer networks. No paper changes hands.

• Electronic methods allow near-instant transfers from sender to receiver.

• The customer's window and the rails are different things

• Internet banking and mobile apps are only the screen the customer uses.
• The money itself moves on "rails": NEFT, RTGS, IMPS, NACH and UPI.

2. Internet banking (net banking)

• Internet banking (also called online banking or netbanking) lets an account holder use the bank's website or app to:
• check the balance and past transactions
• pay bills

• transfer money

• It works from a computer or smartphone. You do not need to visit a branch (Class 7).

• When a customer picks "NEFT", "RTGS" or "IMPS" inside net banking, the bank sends the payment through that rail.

3. National Electronic Funds Transfer (NEFT)

• Definition: NEFT is a nationwide, centralised payment system. The RBI owns and runs it [3]. It has been running since 2005.
• Deferred net settlement (DNS)
• Payments are not settled one by one.
• They are collected into batches. At the end of each batch, only the net amount each bank owes another is settled.

• NEFT runs half-hourly batches, 48 a day [3].

• Timing: Available 24×7×365 from 16 December 2019 [7]. (NCERT: since December 2019.)

• Amount: RBI sets no minimum and no maximum [3].

• Exception: cash paid in by walk-in customers is capped at ₹50,000 per transaction [3].

• Credit deadline: The receiving bank must credit the beneficiary, or return the money, within 2 hours of the batch being completed [3].

• Charges
• Inward NEFT (money you receive) is free [3].
• Online NEFT from savings accounts has been free since 1 January 2020 [3].

• Other outward NEFT has maximum bank charges: ₹2.50 (up to ₹10,000); ₹5 (₹10,001–₹1 lakh); ₹15 (₹1–2 lakh); ₹25 (above ₹2 lakh), plus GST [3].

• Cross-border use: Outward NEFT is allowed only to Nepal, under the Indo-Nepal Remittance Facility [3].

• Scale (CY-2024): 926.84 crore transactions worth ₹432.79 lakh crore. As of December 2024 NEFT had 235 direct members and 1,928 sub-members [6].

4. Real Time Gross Settlement (RTGS)

• Definition: RTGS settles fund transfers "continuously and in real time, individually on a transaction-by-transaction basis" [2]. The RBI has run it since 2004.
• Gross means each payment is settled in full, on its own. It is not netted against other payments.

• Real time means the payment is settled the moment it is processed. There is no batch wait.

• Amount: Minimum ₹2,00,000, no upper limit. RTGS is "primarily meant for large value transactions" [2].

• Timing: Available 24×7×365 from 14 December 2020 [2]. (NCERT: since December 2020.)
• Credit deadline: The receiving bank must credit the beneficiary within 30 minutes. If it cannot, it must return the funds within one hour, or before the RTGS business day ends, whichever is earlier [2].
• Charges
• The RBI's processing charges were waived from 1 July 2019 [2].

• Bank charges have a cap: inward is free; outward ₹2–5 lakh costs at most ₹25; above ₹5 lakh, at most ₹50 [2].

• LEI (Legal Entity Identifier)

• An LEI is a unique 20-character global code that identifies a legal entity, such as a company.

• The sender's and beneficiary's LEI are required only for eligible (large, entity-level) transactions. It is not needed for every transfer [2].

• Systemically important payment system (SIPS)

• RTGS carries the biggest payments between banks and in the money markets.

• If it fails, the whole financial system is hurt.

• Scale (CY-2024): 29.53 crore transactions worth ₹1,938.21 lakh crore [6].

Worked example — average ticket size (CY-2024) [6]:

• RTGS: ₹1,938.21 lakh crore ÷ 29.53 crore transactions ≈ ₹65.6 lakh per transaction.
• NEFT: ₹432.79 lakh crore ÷ 926.84 crore transactions ≈ ₹46,700 per transaction.
• So RTGS handles about 1/31 of NEFT's volume but about 4.5 times its value. It is the rail for wholesale, large payments.

5. Immediate Payment Service (IMPS)

• Definition: IMPS is an instant, 24×7 retail transfer system. NPCI has run it since 2010.

• NPCI (National Payments Corporation of India) is a non-profit body promoted by the RBI and the Indian Banks' Association to run retail payment systems.

• How you pay: with the account number and IFSC, or with the mobile number (plus MMID).

• IFSC (Indian Financial System Code) is an 11-character code that identifies a bank branch.

• Settlement

• The customer gets the money instantly.

• Between banks, the amounts are net settled later in RBI accounts.

• Limit history [4]

• ₹2 lakh per transaction from January 2014.
• Raised to ₹5 lakh in the RBI Statement of 8 October 2021, for channels other than SMS and IVRS. (NCERT: ₹5 lakh since 2021.)
• The SMS and IVRS channels stay capped at ₹5,000 [4].

6. NACH and Bharat BillPay

• National Automated Clearing House (NACH)
• NPCI runs NACH for bulk and recurring payments.
• Credits (one payer, many receivers): salaries, pensions, dividends.
• Debits (auto-debit mandates): EMIs, SIP instalments, insurance premiums.

• A mandate is the customer's standing permission for regular debits from their account.

• Aadhaar Payment Bridge (APB)

• The APB runs on NACH.
• It sends Direct Benefit Transfer (DBT) subsidies to the bank account linked to the beneficiary's Aadhaar number.

• So the government needs only the Aadhaar number, not the account details.

• Bharat BillPay (2017)

• One interoperable platform for utility bills, fees and similar payments. Interoperable means any bank or app can pay any listed biller.
• It is run by NBBL (NPCI Bharat BillPay Ltd).

7. Gross vs net settlement: why the design differs

• Settlement risk is the risk that a bank which owes money fails to pay before the payment is final.
• Gross settlement (RTGS)
• Each payment is final the moment it settles, so there is no settlement risk.
• One failed payment cannot drag others down, because nothing is left waiting to be netted.

• The cost is liquidity. Banks must have enough funds on hand to pay each transfer in full.

• Net batches (NEFT)

• Only the net difference between banks moves, so banks need far less liquidity.
• The cost is a short wait and some exposure until the batch settles.

Worked example — netting:

• In one batch, Bank A must pay Bank B ₹100 crore, and Bank B must pay Bank A ₹80 crore.
• Gross (RTGS style): ₹100 crore + ₹80 crore = ₹180 crore must move. Each bank needs the full amount ready.
• Net (NEFT style): only ₹100 − ₹80 = ₹20 crore moves, from A to B.
• Liquidity saved = ₹160 crore. But if Bank A fails before the batch closes, every payment in that batch is stuck.

8. Pushing adoption and safety

• Charges waived
• The RBI waived its own processing charges on NEFT and RTGS from July 2019 and asked banks to pass the benefit to customers.

• Online NEFT and RTGS from savings accounts is now generally free [2][3].

• Beneficiary account name look-up [5]

• The RBI's circular of 30 December 2024 made banks offer this for RTGS and NEFT by 1 April 2025.
• The sender can see the account holder's name before sending the money. This helps avoid mistakes and prevent fraud.
• The facility is free of charge. UPI and IMPS already had a similar check.

• Earlier, RTGS credits were made "solely based on account number", because Indian names are spelt in many ways and would not match reliably [2].

• Overall growth of digital payments [6]

• Volume grew about 94 times and value more than 3.5 times between CY-2013 and CY-2024.
• CY-2013: 222 crore transactions worth ₹772 lakh crore.
• CY-2024: over 20,787 crore transactions worth ₹2,758 lakh crore.

9. Comparison table

System	Operator	Settlement	Minimum / maximum	Timing
RTGS	RBI (2004)	Gross, real-time	Min ₹2 lakh; no max	24×7 since 14 Dec 2020 [2]
NEFT	RBI (2005)	Deferred net, half-hourly batches (48 a day)	None; none (cash ≤ ₹50,000) [3]	24×7 since 16 Dec 2019 [7]
IMPS	NPCI (2010)	Instant for customer; net settled later between banks	Max ₹5 lakh (₹5,000 via SMS/IVRS) [4]	24×7
UPI	NPCI (2016)	Instant for the customer	Usually ₹1 lakh; higher for some categories (verify current)	24×7
NACH	NPCI	Bulk batches	Varies by mandate	Scheduled

Prelims Hooks

• RTGS = RBI-run, gross, real-time, one-by-one settlement; minimum ₹2 lakh, no maximum; 24×7 from 14 Dec 2020.
• NEFT = RBI-run, deferred net settlement in 48 half-hourly batches; no minimum or maximum set by RBI; 24×7 from 16 Dec 2019.
• Trap: "NEFT has a minimum of ₹2 lakh" is false. The ₹2 lakh minimum is for RTGS.
• IMPS and NACH are run by NPCI, not the RBI. NEFT and RTGS are run by the RBI.
• IMPS limit: ₹2 lakh (2014) → ₹5 lakh (Oct 2021). SMS/IVRS stay at ₹5,000.
• Outward NEFT abroad is allowed only to Nepal (Indo-Nepal Remittance Facility).
• RTGS credit deadline is 30 minutes. NEFT credit deadline is 2 hours after the batch.
• Beneficiary account name look-up for RTGS/NEFT became mandatory from 1 April 2025 and is free.
• Aadhaar Payment Bridge runs on NACH and carries DBT.
• RTGS is a systemically important payment system. Gross settlement removes settlement risk but needs more liquidity.

Mains Points

• Choosing a design: safety or liquidity
• RTGS (gross) removes settlement risk for large, system-level payments, but banks must keep more money on hand.
• NEFT (net) saves liquidity for many small payments, but money waits for the batch.

• Having both lets India match each rail to the risk of the payment. This fits PFMI-type standards for systemically important systems.

• Public infrastructure as a public good

• When the RBI waived charges (July 2019), made savings-account NEFT free (Jan 2020) and opened NEFT/RTGS 24×7 (2019–20), costs fell and access widened.

• As a result, digital payments grew about 94 times in volume between 2013 and 2024, which supports financial inclusion and formalisation.

• Fraud and consumer protection

• Instant transfers that cannot be reversed make mistakes and fraud costlier.
• Name look-up (2025), fixed credit or return deadlines and the RBI's ombudsman route show regulation moving towards safety by design.

• Cyber-security and outages on 24×7 rails are still key risks.

• Link with DBT and governance

• NACH and the Aadhaar Payment Bridge send subsidies straight into bank accounts, reducing leakages and middlemen.
• This links payment infrastructure to JAM (Jan Dhan–Aadhaar–Mobile) and welfare delivery (GS-II/GS-III).