NEFT (National Electronic Funds Transfer)

The National Electronic Funds Transfer (NEFT) is a centralized payment system that facilitates transfers between certain bank accounts across India. Launched in 2005, the system is managed by the Reserve Bank of India (RBI) and allows for transfers between any two NEFT-enabled bank accounts on a one-to-one basis, 24/7/365.

What is the National Electronic Funds Transfer (NEFT)?

NEFT is available to any individual, business, or corporation in India banking at a financial institution utilizing the system. National Electronic Funds Transfers can be made in-person at a bank, online through a web-based banking portal, or via a mobile banking application.

To send an NEFT, the sender must initiate the transaction at a local branch of their bank or using a computer or smartphone. Let’s look at an NEFT transaction step-by-step: imagine that Fatima needs to send her friend, Amir, ₹8000 (roughly $96).

  1. Fatima opens up her mobile banking application and initiates an NEFT transaction for the ₹8000.
  2. She can then provide the required details of the transaction. This includes:
    1. Amir’s full name
    2. Amir’s bank name
    3. Amir’s branch name
    4. Amir’s bank account type
    5. Amir’s bank account number
    6. Amir’s branch IFSC
      1. IFSC stands for Indian Financial System Code and it is an alpha-numberic code that uniquely identifies a given branch participating in the NEFT system,
    7. Both her own and Amir’s Legal Entity Identifiers
      1. An LEI is a 20-digit alpha-numeric code that uniquely identifies an individual and functions similarly to a social security number.
  3. Fatima’s bank then sends the transaction, formatted as a message, through the “NEFT Service Centre” to the “NEFT Clearing Centre” which is operated by the Reserve Bank of India (RBI).
  4. The “NEFT Clearing Centre” sorts the message and includes it in a batch of other transaction messages also being sent to Amir’s bank. From there the “NEFT Clearing Centre” is able to debit Fatima’s bank ₹8000 of the transaction and credit Amir’s bank ₹8000.
  5. Once the transaction is complete, Fatima will receive either an email or an SMS message altering her that the payment has been received by Amir.

Unlike real-time gross settlement (RTGS), which is also available through the Reserve Bank of India, national electronic funds transfers are not real-time, though they are processed quickly in either hourly or half-hourly batches.

An individual without a bank account can still use the national electronic funds transfer system to send funds, the one caveat to this is that the funds must be sent to a recipient with a NEFT-enabled bank account. Let’s imagine that Fatima needs to send the same ₹8000 (roughly $96) to her friend, Amir, but she does not have a bank account. Luckily, Amir banks at Bank of India and is able to receive transactions via the national electronic funds transfer (NEFT). To send Amir the ₹8000, Fatima can go to any NEFT-enabled bank, deposit the funds in cash, provide her contact details and Amir’s relevant bank account information, and send him the money using NEFT.

There is currently no minimum or maximum limit when sending transactions using NEFT, however, NEFT-enrolled banks can set their own transaction limits that apply to transactions made to and from their institution.

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