What is NEFT/RTGS?

National Electronic Fund Transfer (NEFT) is an online system for transferring funds of financial institution, especially for the banks in India. This service is used mainly to transfer funds below Rs 100000.

The instant funds transfer system, known as the Real Time Gross Settlement(RTGS) cannot be used for an amount below Rs. 1 lakh by the banks as per the instructions of the banking regulator, the Reserve Bank of India. RBI has asked banks to offer National Electronic Fund Transfer (NEFT) which provided T+0 and T+1 settlement system depending on the time a customer gives instruction to the bank for transferring the fund for small transactions.

RTGS vs NEFT

The main difference between NEFT and RTGS is that the NEFT works on net settlement basis and RTGS works on gross settlement basis. The NEFT involves four settlement cycles a day 9.30 am, 10.30 am, 12 pm and 4 pm and RTGS facilitates online transfer. If a customer has given instruction to its bank to transfer money through NEFT to another bank in the morning hours, money would be transferred the same day and if the instruction is given later during the day the money would be transferred next day.

All commercial banks have put in place the RTGS facility, only 43 banks have purchased the software required to facilitate NEFT based transaction. The RTGS facility is available in over 25000 branches, while NEFT is available in about 37000 branches. RBI had instructed banks that all branches which had RTGS enabled should also provide NEFT by December 2006. The RBI had also planned to discontinued EFT-Electronic funds Transfer. This is because EFT is available only in 15 locations where RBI has its clearing house. The customers can access the RTGS facility only up to 3 pm and inter-bank transactions are possible up to 5 pm at present.