What is NEFT? How does NEFT work? The Complete Guide

Starting in November 2005, National Electronic Funds Transfer (NEFT) was established by the Institute for Development and Research in Banking Technology. The objective of this system is to enable electronic fund transfers. It is owned and controlled by the Reserve Bank of India (RBI) and used nationwide. So, How does NEFT actually work? let’s understand this: 

• Objective: NEFT is a service provided by the bank to its customers for transferring funds securely from one bank account to another bank account. Such outbound transfers/remittances  are permitted all over India, including Nepal.
• Processing time: Earlier, the processing time for NEFT transactions were between 8:00 AM to 6:30 PM for Monday to Friday, and 8:00 AM to 12:00 PM on Saturdays. However from 2020, to promote digital transactions, NEFT transactions are permitted to be done 24*7.

• Clearing time: NEFT operates on a deferred net settlement (DNS) basis which settles transactions in batches. Out of 24 hours in a day, 2 batches of NEFT transactions take place in a single hour. Therefore, in a day, NEFT transactions are settled 48 times.
• Transaction Cancellation Process: Once the NEFT transaction is initiated, the user cannot stop or cancel the payment. So, if the money is sent by mistake, to the wrong recipient or a wrong IFSC code, one has to immediately inform the bank. This can be done by calling on a customer care number shared by the bank and placing a complaint. On placing a complaint, a request ID is generated which the user can track for resolving the issue. 
• Transaction Limit: There is no limit as such for transferring funds through NEFT. However, some banks or bank branches may impose a maximum limit for any transaction.
• Processing charge: The maximum charges which originating bank can levy from its customers for outward transactions if they so desire are given below :

For transactions up to ₹10,000: not exceeding ₹2.50 

For transactions above ₹10,000 up to ₹1 lakh: not exceeding ₹5 

For transactions above ₹1 lakh and up to ₹2 lakhs: not exceeding ₹15

For transactions above ₹2 lakhs: not exceeding ₹25

GST is levied on bank charges mentioned above.

NEFT charges may vary from bank to bank. Depending on your account type, some banks might offer free NEFT transfers within the same bank, adding much more convenience.

• Role of Beneficiary: Before making any NEFT transaction online, the remitter has to make sure that the receipt details are added as a “Beneficiary”. 
•  Transactions Failure: Sometimes, on using the NEFT facility users may not be successful in transferring funds. Below could be the reasons :

• Beneficiary name, IFSC code or account details incorrect. Such details are not in existence with the same branch of the bank leading to the automatic cancellation of the transaction.
• Insufficient bank balance in Remitter’s account.
• If there is any court order restraining operations on the beneficiary’s account.
• The user of NEFT Facility: Individuals, firms or corporations maintaining accounts with a bank branch can transfer funds using NEFT. Even such individuals, firms or corporations who do not have a bank account (walk-in customers) can also deposit cash at the NEFT-enabled branch with instructions to transfer funds using NEFT. Such customers have to furnish full details including complete address, telephone number, etc. NEFT, thus, facilitates originators or remitters to initiate funds transfers even without the need for having a bank account.

    Benefits of NEFT

• It does not require the account holder to visit the bank for transferring funds. Also, there is no requirement for both the remitter and recipient to be in one place. 
• It is a safe and secure payment method and has multiple-step verification so both parties can be assured of security without any worry of loss or theft.
• There is quick confirmation of the transaction to both parties via SMS.
• It can also be used for payment of loan EMIs, credit card dues, etc.
• NEFT does not require cheques or demand drafts for money transfers, making it more cost-effective, so there is no chance of any physical damage made to instruments. It is completely paperless.
• The service is available Pan-India.
• There are no charges levied by RBI from banks.

 Drawbacks of NEFT:

• It cannot be used for real-time/urgent transfer of funds as it is settled in batches.
• Using NEFT is a highly technical alternative to transferring funds which might not be easy for everyone to operate. For example,  gathering all the relevant details of the recipient and adding a beneficiary, process to transferring funds to the added beneficiary etc. A  person having little computer knowledge might find it difficult to operate and access this method.
• Not every bank has the NEFT facility, there are some cooperative banks, and NBFCs not using this facility.
• Both the sender and recipient’s bank must be NEFT-enabled.  

How tomake a transaction through NEFT?

Step 1:  To transfer the funds, firstly the remitter has to get the below details from the person to whom funds need to be transferred.

• Beneficiary’s Name. – Name registered with the bank while creating a bank account.
• Beneficiary’s Account number – Available on the recipient’s bank passbook, or cheque book  or can be pulled by logging into the net banking site or bank’s mobile application.
• Beneficiary’s Account type – Savings account, Current Account, Loan account, etc.
• Bank name, location & base branch in which the beneficiary account is held.
• IFSC code of beneficiary bank – It is Indian Financial System Code having 11-digit characters. This number appears on the passbook or a cheque leaf of the account holder. One can also get it from the internet or the bank’s website by searching the branch name

Step 2: Once these details are received the user can 

• log in to the Net banking site of his bank or login into a Mobile Application of that particular bank. 
• Go to the “Add beneficiary” section, fill in all the required details of the recipient and submit the request for adding beneficiary. 
• One can also fill in the beneficiary details in NEFT application form available at the bank branch and submit the same to authorize the bank to debit his account to the extent of the amount requested in the form.

Step 3: Once the beneficiary is added to the list

• go to the fund transfer section and select the beneficiary from the list available on the site. 
• Enter the amount required to be remitted, and the purpose of remittance in the remarks, if any, read the terms and conditions
• click on the NEFT option and then check/tick the Terms and Conditions (T&C) box.

Step 4: Once all the details are filled and T&C are read, click on submit. By this, the remitter will get the One Time Password (OTP) on his registered mobile number. This OTP needs to be entered and then by clicking on the submit button, the transaction request will originate.

Step 5: The bank branch at which the fund transfer request originated, prepares a message and sends it to its pooling centre (also called the NEFT Service Centre).

Step 6: The pooling centre forwards the message to the NEFT Clearing Centre (operated by the National Clearing Cell, RBI, Mumbai) to be included in the next available batch.

Step 7: On receipt of the NEFT message, the receiving NEFT Service Centre shall process these requests and forward them to the beneficiary branches. Alternatively, the receiving NEFT Service Centre may use the Straight Through Processing (STP) interface and upload these NEFT messages to their internal banking solution directly, to afford the credits to the beneficiary accounts centrally.

Step 8:The beneficiary branch would make payment to the beneficiary within two hours of batch settlement time by crediting the specified account of the beneficiary or otherwise placing funds at the disposal of the beneficiary.

Final word

Banking has become an essential part of our life. Physical transfer of funds through the bank takes a lot of time standing in queues, filling out forms, etc. These problems are now solved through the different online payment modes, and NEFT is one of them. It can be said that NEFT is the safe mode of making a payment which is available 24*7 and it is governed by the guidelines of RBI and hence reliable.

Frequently Asked Questions

1.      How can I find the IFSC of a bank branch?

Bank-wise list of IFSCs is available with all the bank branches participating in the NEFT scheme. It is also available on the website of RBI at https://rbi.org.in/Scripts/bs_viewcontent.aspx?Id=2009. All member banks have also been advised to print the IFSC of the branch on cheques issued to their customers.

2.  Can the NEFT system be used for remitting funds even by those who do not have a bank account?

Yes, a person who does not have a bank account can remit funds through NEFT to a beneficiary having a bank account, with another NEFT member bank. It can be done by depositing cash at the nearest NEFT-enabled branch of any bank, by furnishing additional details such as a complete address, telephone number, etc. Such cash remittances will, however, be restricted to a maximum of ₹50,000 per transaction.

3.  Whether foreign remittances can be made through NEFT?

No, the NEFT system can be used only for remitting Indian Rupees between the participating bank branches within the country and Nepal.

4. What happens in case the amount is debited from the Remitters account, but the beneficiary account is not credited?

In such cases, the remitter will receive the amount back in his account. Such refunds generally get processed within 2-7 banking days.

          5. Can we transfer funds through NEFT offline?

For the offline NEFT process, you have to fill out an NEFT form at your bank’s branch. All the necessary details are filled in the form which is later handed over to the banking official.