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Project

On

“NATIONAL ELECTRONIC FUND TRANSFER: SCOPE AND

IMPLEMENTATION”

Submitted towards the partial fulfillment of

The degree of M.B.A.- Finance.

For the course of

MANAGEMENT INFORMATION SYSTEM

Submitted by: Submitted to:

Kapil Solanki Dr. Manmeeta

MBA-Finance (2nd SEM) Associate Professor & Asst. Dean,
Roll no. – 244 Faculty of Management

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JODHPUR

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CONTENTS
SERIAL NUMBER CHAPTERS PAGE
NUMBE
R

EXECUTIVE SUMMARY 3

OBJECTIVES 4

RESEARCH METHODOLOGY 5

CHAPTER – 1 INTRODUCTION: INFORMATION SYSTEMS 6-11

CHAPTER-2 INTRODUCTION: NATIONAL ELECTRONIC FUND 12-17

TRANSFER

CHAPTER-3 COMPARISON OF NEFT SYSTEM WITH 18-22

TRADITIONAL BANKING SYSTEM

CHAPTER-4 CONCLUSION 23

CHAPTER-5 RECOMMENDATION 24

A. LIMITATION 25

B. BIBLIOGRAPHY. 26

EXECUTIVE SUMMARY

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This work deals with implementation and scope of NEFT.

Chapter one deals with the introduction Information systems.
Chapter two deals with introduction to National Electronic Fund Tranfer.
Chapter three deals with comparison of NEFT system with traditional banking system.
Chapter four provides conclusion of this work.
Chapter six provides various recommendations about NEFT system.

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RESEARCH OBJECTIVES

I. To analyze the present working of NEFT system.

II. To determine the efficacy of NEFT system for banks.

III. To recommend collective course to banking sector in implementation of NEFT system.

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RESEARCH METHODLOGY

My research methodology will be doctrinal as well as non-doctrinal in nature. The data will be
both primary as well as secondary. The survey will be conducted by the means of questionnaire
in which various questions on the topic will be posed. Information would be collected and data
would be tabulated, analysis and recommendation will be made.

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CHAPTER-1

INFORMATION SYSTEMS

Introduction to Information System

Information Systems (or IS) is historically defined as a 'bridge' anchored between the business
world and computer science, but this discipline is slowly evolving towards a well-defined
science. Typically, Information Systems (or IS) include people, procedures, data, software, and
hardware (by degree) that are used to gather and analyze information. Specifically computer-
based information systems are complementary networks of hardware/software that people and
organizations use to collect, filter, and process, create, & distribute data. Today, Computer
Information System(s) or CIS is often a track within the computer science field pursuing the
study of computers and algorithmic processes, including their principles, their software &
hardware designs, their applications, and their impact on society. Overall, an IS discipline
emphasizes functionality over design.

In a broad sense, the term Information Systems refers to the interaction between algorithmic
processes and technology. This interaction can occur within or across organizational boundaries.
An information system is not only the technology an organization uses, but also the way in
which the organizations interact with the technology and the way in which the technology works
with the organization’s business processes. Information systems are distinct from information
technology (IT) in that an information system has an information technology component that
interacts with the processes components.

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Information processing

Information Technology in Banking

Technology has opened up new markets, new products, new services and efficient delivery
channels for the banking industry. Online electronics banking, mobile banking and internet
banking are just a few examples. Information Technology has also provided banking industry
with the wherewithal to deal with the challenges the new economy poses. Information
technology has been the cornerstone of recent financial sector reforms aimed at increasing the
speed and reliability of financial operations and of initiatives to strengthen the banking sector.

The IT revolution has set the stage for unprecedented increase in financial activity across the
globe. The progress of technology and the development of worldwide networks have
significantly reduced the cost of global funds transfer. It is information technology which enables
banks in meeting such high expectations of the customers who are more demanding and are also
more techno-savvy compared to their counterparts of the yester years.

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They demand instant, anytime and anywhere banking facilities. IT has been providing solutions
to banks to take care of their accounting and back office requirements. This has, however, now
given way to large scale usage in services aimed at the customer of the banks. IT also facilitates
the introduction of new delivery channels--in the form of Automated Teller Machines, Net
Banking, Mobile Banking and the like. Further, IT deployment has assumed such high levels that
it is no longer possible for banks to manage their IT implementations on a standalone basis with
IT revolution, banks are increasingly interconnecting their computer systems not only across
branches in a city but also to other geographic locations with high-speed network infrastructure,
and setting up local area and wide area networks and connecting them to the Internet. As a result,
information systems and networks are now exposed to a growing number.

Banking Information System

The business of financial institutions such as banks and brokerage houses is a business of trust
and information. To succeed, financial institution must manage both assets properly. To manage
their information assets, financial institutions make extensive use of information systems and
information technology, and they have done so for a long time. However, because they are also a
business of trust, they tend to be risk-averse in managing their information. Thus, they tend to
continue using old systems and technologies and methods longer than other businesses.

If we talk of current status of banks, it manage information with multiple legacy systems that run
on one of their mainframe computers. Typically, each of those systems handles one and only one
particular financial instrument. Then there are additional systems that try to consolidate the
information created by the former. Whenever a new financial instrument is created or a variant of
an old one is introduced, banks have to develop a new information system.

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Very little is reused, new code is written, and the data is structured separately. In general, there is
very little integration between the different systems even though most financial instruments are
very similar.

Each instrument is still managed with a separate systems (and in some cases with a separate
mainframe computer), but to the user they are presented as a single system. This allows the Bank
to analyze the relationship with each customer based on all their accounts. Furthermore, the use
of object-oriented technology allows the bank’s IT to have faster response time to new systems
and new instruments. It also allows for some cut reduction on future.

Information technology in banking

Entry of new banks resulted in a paradigm shift in the ways of banking in India. The growing
competition, growing expectations led to increased awareness amongst banks on the role and
importance of technology in banking. The arrival of foreign and private banks with their superior
state-of-the-art technology-based services pushed Indian Banks also to follow suit by going in
for the latest technologies so as to meet the threat of competition and retain their customer base.

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Indian banking industry, today is in the midst of an IT revolution. A combination of regulatory

and competitive reasons has led to increasing importance of total banking automation in the
Indian Banking Industry.

The Software Packages for Banking Applications in India had their beginnings in the middle of
80s, when the Banks started computerizing the branches in a limited manner. The early 90s saw
the plummeting hardware prices and advent of cheap and inexpensive but high-powered PCs and
servers and banks went in for what was called Total Branch Automation (TBA) Packages. The
middle and late 90s witnessed the tornado of financial reforms, deregulation, globalization etc
coupled with rapid revolution in communication technologies and evolution of novel concept of
'convergence' of computer and communication technologies, like Internet, mobile / cell phones
etc.

In India, banks as well as other financial entities entered the world of information technology and
with Indian Financial Net (INFINET). INFINET, a wide area satellite based network (WAN)
using VSAT (Very Small Aperture Terminals) technology, was jointly set up by the Reserve
Bank and Institute for Development and Research in Banking Technology (IDRBT) in June
1999.

Internet has significantly influenced delivery channels of the banks. Internet has emerged as an
important medium for delivery of banking products & services. The Information Technology
Act, 2000 has given legal recognition to creation, trans-mission and retention of an electronic (or
magnetic) data to be treated as valid proof in a court of law, except in those areas, which
continue to be governed by the provisions of the Negotiable Instruments Act, 1881.

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Implementation of Centralized Funds Management System

The centralized funds management system (CFMS) provides for a centralized viewing of balance
positions of the account holders across different accounts maintained at various locations of RBI.
While the first phase of the system covering the centralized funds enquiry system (CFES) has
been made available to the users, the second phase comprising the centralized funds transfer
system (CFTS) has been made available by the middle of 2003

Certification and Digital Signatures 

The mid-term Review of October 2002 indicated the need for information security on the
network and the use of public key infrastructure (PKI) by banks. The Controller of Certifying
Authorities, Government of India, have approved the Institute for Development and Research in
Banking Technology (IDRBT) as a Certification Authority (CA) for digital signatures.
Consequently, the process of setting up of registration authorities (RA) under the CA has
commenced at various banks. In addition to the negotiated dealing system (NDS), the electronic
clearing service (ECS) and electronic funds transfer (EFT) are also being enhanced in terms of
security by means of implementation of PKI and digital signatures using the facilities offered by
the CA.

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CHAPTER-2

NATIONAL ELECTRONIC FUND TRANSFER (NEFT)

Overview

Payment systems are the key component of any financial system. They facilitate the movement
of money in the economy. The efficient functioning of the payment system makes a key
contribution to overall economic performance by allowing safe and timely completion of
financial transactions. Payment systems also provide the channel for effective transmission of
monetary policy. World over, the payment systems segment of the financial system have been
witnessing rapid changes due to the developments in information and communication
technologies. The changes are either spearheaded by the Central banks/Governments, or banking
sector. The aim of most of these developments have been to (i) reduce the usage of currency and
paper based payment instruments and (ii) facilitate faster movement of funds in the economy-
increase the efficiency with safety and security.

Recognizing the importance of payments systems to the development the economy, Reserve
Bank of India, has taken number of steps during the last few years to build a tough payments
system. The steps taken include building the necessary payments infrastructure and develop a
strong institutional framework for the payment and settlement systems in the country.

NEFT

The NEFT was introduced in 2005. Since its inception the coverage of NEFT has Increased.
Currently it is available in 28000+ bank branches, through 67 banks at 3000+ centers. The target
is to cover all branches with RTGS facility, initially and then, further expand it to all
computerized bank branches in the country. The system also envisages extending it to non-
computerized rural branches as well through the project, NEFT extended.

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As per this project the transaction will be routed to the nearest NEFT branch, and the last mile
would be covered manually. This system would cover all on-line branches of the Bank.

The objects of the NEFT system are:

(1) To establish an Electronic Funds Transfer System to facilitate an efficient, secure,

economical, reliable and expeditious system of funds transfer and clearing in the banking
sector throughout India, and

(2) To relieve the stress on the existing paper based funds transfer and clearing system.

Salient Features of the NEFT Facility:

I. NEFT permits transfer of funds from one customer account of a specific Bank to the
account of another customer of a different Bank. Initially, 4 settlements on week days
( 9:30 a.m., 10.30 a.m., 12.00 noon, and 4.00 p.m.) and 3 settlements on Saturday (9.30
a.m. and 12.00 noon) on a deferred net settlement basis will take place.

II. Transactions below Rs. 1.00 lac can be effected through NEFT.

III. Initially, selected branches are authorized to undertake NEFT transactions and it will be
extended at all online branches in a phased manner.

IV. Customer maintaining SB/ CD/ CC account with the Bank and willing to avail NEFT
facility (Inward/ Outward both remittances) has to execute an Agreement with the Bank.

V. Customer who does not have account with any Bank and wants to remit (Outward) funds
through NEFT system, may also opt this facility upto Rs. 0.50 lac in cash. However, all
stipulated guidelines in case of purchase of DD/PO in cash would be strictly followed.

VI. Nepalese Citizens working in India may remit the funds to Nepal (Only Outward
remittance) through this system.

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VII. Customer may pay his Debit/Credit card outstanding through NEFT system in cash/
transfer and also through his Debit/Credit card.

VIII. The Treasury Branch, Mumbai shall process the requests and transmit to RBI, NCC,
Mumbai.

IX. No charges are levied by the NEFT clearing Centre.

 Inward Remittance: Free

 Outward Remittance: 50/- + Service Tax per transaction irrespective amount.

This is a message based funds transfer system. The system provides secure one-to-one funds
transfer facility for customers of banks. Unlike its precursors the EFT system which provided
settlement facility only at few centers, the NEFT facilitates national coverage, with centralized
clearing and settlement facility. Further, to provide sound legal basis to the system, the system is
provided with Public Key Infrastructure (PKI) based security system. There are six settlements
during a day in this system, thereby facilitating same day settlement of funds, for customers
using this facility.

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How NEFT system operates

Step-1:

The remitter fills in the NEFT

application form giving the
particulars of the beneficiary (bank-
branch, beneficiary’s name, account
type and account number) and
authorizes the branch to remit the
specified amount to the beneficiary
by raising a debit the remitter’s
account. (This can also be done by
using net banking services offered
by some of the banks.)

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Step-2:

The remitting branch prepares a Structured Financial message (SFMS message) and sends it to
its Service Centre for NEFT.

Step-3:

The Service Centre forwards the same to the RBI NEFT centre (National Clearing Cell,
Mumbai) to be included for the next available settlement. Presently, NEFT is settled in six
batches at 9:30, 10:30, 12:00, 13:00, 1500 and 1600 hours on weekdays and 9:30, 10:30 and
12:00 hours on Saturdays.

Step-4:

The RBI at the NEFT centre sorts the transactions bankwise and prepares accounting entries of
net debit or credit for passing on to the banks participating in the system. Thereafter, bank-wise
remittance messages are transmitted to banks.

Step-5:

The receiving banks process the remittance messages received from RBI and afford credit to the
beneficiaries’ accounts.

NEFT main window

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CHAPTER-3

COMPARISON OF NEFT SYSTEM WITH TRADITIONAL BANKING

SYSTEM

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Before the introduction of NEFT and RTGS the transferring of fund was done through non use
of technology. The bank use the medium of demand draft(DD) and telegraphic transfer(TT).
However, DD is very common medium of transferring fund in current scenario also but TT is not
used very often.

Hawala System- Hawala (also known as hundi) is an informal value transfer system based on

the performance and honour of a huge network of money brokers, which are primarily located in
the Middle East, North Africa, the Horn of Africa, and South Asia

a hawala money transfer is a way to send money via a  hawaladar or hawaladars, usually across
long distances, at a far lower cost than sending money by wire or bank transfer.  Hawala banking
with hawala transactions and hawaladars have been used for thousands of years.

The transfer of money via a hawala banking system is extremely private and is unlikely to be
reported or discovered by anyone other than the hawaladar, the transferor and the tranferee. In
the hawala system, hawaladars are the brokers or facilitators of the transaction.  This
transactional privacy has made hawala banking an evil villain for enemies of personal privacy
and financial privacy.

Demand Draft- A method used by individuals to make transfer payments from one bank account
to another. Demand drafts are marketed as a relatively secure method for cashing checks. The
major difference between demand drafts and normal checks is that demand drafts do not require
a signature in order to be cashed. Also known as "remotely created checks".

Telegraphic Transfer- T/T. A method of payment in which funds are transferred via telegraph

or cable. Telegraphic transfers are most common in business conducted in developing countries,
where other types of infrastructure, such as computerized payments, may not be available.

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These methods are not very effective and speedy way of transferring fund as they are through
post/ telegraph. TT is not oftenly used but DD is still used for transferring fund. The Reserve
Bank of India introduced EFT for speedy transfer of fund from one place to another.

RBI EFT is a Scheme introduced by Reserve Bank of India (RBI) to help banks offering their
customers money transfer service from account to account of any bank branch to any other bank
branch in places where EFT services are offered.

An interface to a regional, national or international EFT network provides a financial institution

with shared EFT network services. Upon implementation, the financial institution can offer its
customers a wider range of ATM and EFT-POS terminal usage. Most financial institutions in the
India connect to a regional EFT network that also supports a gateway to an international EFT
network like MasterCard and Visa.

Fund availability schedule for beneficiary in EFT

If the remitting bank transmits the funds transfer message to RBI so as to hit the first settlement
at 12 noon, the receiving bank’s account is credited by RBI at the destination centre and
beneficiary gets the credit on Day 1 itself. If the same is included in subsequent settlements i.e.,
for 2 pm and 4 pm, the beneficiary gets credit on Day 2.

Steps in it operation

Step-1: The remitter fills in the EFT Application form giving the particulars of the beneficiary
(city, bank, branch, beneficiary’s name, account type and account number) and authorises the
branch to remit a specified amount to the beneficiary by raising a debit to the remitter’s account.

Step-2: The remitting branch prepares a schedule and sends the duplicate of the EFT application
form to its Service branch for EFT data preparation. If the branch is equipped with a computer
system, data preparation can be done at the branch level in the specified format.

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Step-3: The Service branch prepares the EFT data file by using a software package supplied by
RBI and transmits the same to the local RBI (National Clearing Cell) to be included for the
settlement of 12 noon, 2 pm and 4 pm.

Step-4: The RBI at the remitting centre consolidates the files received from all banks, sorts the
transactions city-wise and prepares vouchers for debiting the remitting banks on Day-1 itself.
City-wise files are transmitted to the RBI offices at the respective destination centers.

Step-5: RBI at the destination centre receives the files from the originating centres, consolidates
them and sorts them bank-wise. Thereafter, bank-wise remittance data files are transmitted to
banks on Day 1 itself. Bank-wise vouchers are prepared for crediting the receiving banks’
accounts the same day or next day.

Step-6: On Day 1/2 morning the receiving banks at the destination centres process the remittance
files transmitted by RBI and forward credit reports to the destination branches for crediting the
beneficiaries’ accounts.

 How it is better than previous means of transferring fund

The primary modes of funds transfer at present are demand draft, mail transfer and
telegraphic transfer. The demand draft facility is paper based. The remitter, after purchasing
demand draft from a bank branch, dispatches the same by post/courier to the beneficiary. The
beneficiary, in turn, lodges the draft to his/her bank for collection and clearing. The time taken
for completing the process is about 10 days. In the case of telegraphic transfer, fund reaches the
beneficiary either on the same day or the next; but both the remitter and the beneficiary would
have to be account holders of the same bank. If they are customers of different banks, a good
deal of paper processing is required.

On the other hand, RBI EFT system is an inter-bank oriented system. RBI acts as an
intermediary between the remitting bank and the receiving bank and effects inter-bank funds

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transfer. The customers of banks can request their respective branches to remit funds to the
designated customers irrespective of bank affiliation of the beneficiary.

 It is not necessary for all branches to have computer systems. Branches can send the
remittance details to their service branch in paper format (the copies of the EFT
Application Forms submitted by the remitting customers accompanied by a Remittance
Scroll). The Service branch will make data entry and transmit the funds transfer
information electronically to local NCC. But, if a branch has computer facility, it can
transmit funds transfer information electronically to its service branch either on a floppy
or through a network. This would minimise the data entry work at the service branch.
 There is no value limit for individual transactions.

NEFT and RTGS came into picture

There are faster and simpler ways to transfer money safely through use of RBI supported
electronic funds transfer systems such as NEFT and RTGS. The fund transfers happen
electronically for a relatively small fees and are completely safe. You can do the money transfer
easily as long as you have an internet banking account with your bank and information about the
beneficiary bank account. The money will be in your beneficiary's bank account almost
immediately (in case of RTGS) or in a few hours (if you use NEFT).

NEFT - The acronym “NEFT” stands for National Electronic Funds Transfer. Funds are
transferred to the credit account with the other participating Bank using RBI's NEFT service.
RBI acts as the service provider and transfers the credit to the other bank's account.

NEFT: Minimum: No Limit Maximum: Rs. 5 Lakh

RTGS –The acronym “RTGS” stands for Real Time Gross Settlement. The RTGS system
facilitates transfer of funds from accounts in one bank to another on a “real time” and on “gross

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settlement” basis. The RTGS system is the fastest possible interbank money transfer facility
available through secure banking channels in India.

RTGS: Minimum: Rs. 1 Lakh Maximum: Rs. 5 Lakh

NEFT / RTGS are the cheapest mode of transferring money through banks in India. Corporate
are saving huge money by utilizing the two but lack of awareness depriving the general public
from such cheapest and fastest mode of transfer of money.

CHAPTER-4

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CONCLUSION

The facility of NEFT is used by large number of banks for facilitating transfer of fund from one
bank to another. This fund transfer has been proved an effective way of transferring money as it
has lesser fee and speedy transfer. In NEFT the settlement takes place 4 time a day and timing is
also that at which maximum transaction of fund takes place. Due to emergence in technology
now transfer of fund can be done in few minutes and the most significant thing in it is that it has
lessened the paper work of bank and transaction is done through computer.

RBI in its review on the payment system in India has told that lack of awareness in coming on
the way of effective usage of such revolutionary payment system in India. Large corporate
bodies have taken no of initiatives for the adoption of new payment modes but need is there the
general public should be aware of this facilities and hence should be able to utilize it effectively
and take the advantage in the form of cost saving, time saving and ease of banking. So say good
bye to costly and slow mode of remittance like demand draft, banker’s cheque and switch over to
cheapest and immediate transfer mode NEFT/RTGS.

CHAPTER- 5

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RECOMMENDATIONS

 Reserve Bank of India should take measure in order to make more branches to participate
in NEFT.
 The branches which are situated in rural area should charge less fee per transaction in
order to increase use of NEFT by customers.
 The first settlement takes place within an hour of opening but there is a gap of four hours
between third and fourth settlement as there should be one more settlement can take
place.
 RBI should update its technology faster as it add to it effectiveness of system.
 A quick response action team should be build in order to meet any technical failure.
 There should be expertise training given to bank to handle system more effectively.

LIMITATION

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This project work is a limited & focused analysis & doesn’t claim to be a compendium; nevertheless,
utmost considerations are made before including any fact & figure. This is neither an intensively observed
report nor an extensive study because t he data used in this proposal is Secondary in nature and is in
the form of various publications of foreign bodies, websites, books, magazines and newspapers,
reports prepared by research scholars, news documents and other sources of published
information.

This project would have been more of use if there could be interaction with any bank and their it
department.

BIBLIOGRAPHY

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Books
W.S. Jawedekar, Management information system, (2nd edition) 2005,Tata McGraw-Hill, New
Delhi.

Websites
http://www.sefindia.org/?q=node/189

http://www.banknetindia.com/special/itb2.htm

http://www.venturewoods.org/wp-content/uploads/2007/11/paymentsystems.pdf

http://findarticles.com/p/articles/mi_6776/is_6_7/ai_n28514260/?tag=content;col1

http://www.articlesbase.com/banking-articles/inter-bank-money-transfer-using-neft-and-rtgs-in-india-
the-essentials-1518428.html

http://www.merinews.com/article/neftrtgs-revolution-in-cost-effective-domestic-money-
transfer/128575.shtml

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