Banks transfer funds from one one account to another.The primary methods to transfer money are physical and electronic transfers. In this article, we shall look at the ways to transfer money electronically such as third party fund transfer, inter bank transfer. It explains what are electronic transfer, what are NEFT, RTGS, how they are done?
Table of Contents
What are the ways of transferring money between accounts?
The primary methods to transfer money were physical, such as Cash, Cheques, Bank Drafts and Money Orders, where you give the money or the cheque to other person and then person had to submit the cheque
Net banking has made banking easier and more convenient The online fund transfer facility frees us from the hassles of paperwork that is usually required to transfer funds from one account to another. So we can transfer funds to our own or third party accounts within the bank or other banks by simply clicking a mouse! Banks are now also promoting mobile banking. Bemoneyaware’s bank explains different channels offered by bank to access their banking and other services
What electronic fund transfer services are available?
A bouquet of funds transfer services are available through Internet banking such as:
- Transfer funds within your own accounts called as Fund Transfer.
- Transfer funds to third party account held in the same bank. It which is used to transfer funds to another account that belongs to somebody else but in the same bank (not necessary to be in the same branch as yours).
- Make an Inter-bank funds transfer to any account held in any bank called as Interbank Transfer to transfer money to anyone having an account in any bank (or branch) in India. Interbank transfer is usually done through NEFT transfer or RTGS transfer.
- Pay any credit card bill
At times there is confusion on names. For example, SBI says Third Party transfer as Transfer funds to third party account held in the same bank. So be careful of naming convention in your bank. NEFT or RTGS is used for transfer of funds to other banks. Our article Cheque: Clearing Process, CTS 2010 explains how cheque are cleared
Why should one go for Electronic Transfer?
Electronic fund transfers are safe. It’s also a faster and cheaper way to transfer money.
- Speed that is the biggest advantage of electronic fund transfer (real-time gross settlement or RTGS and national electronic fund transfer or NEFT). A cheque usually takes two to three days to clear; add another day if it is an outstation cheque. In electronic transfers, money is transferred directly from the bank account of the person sending or remitting the money to the bank account of the receiver.
- RTGS and NEFT are cheaper than issuing a cheque or DD, as the cost to the bank is less.
Some of the terms associated with Third Party Fund Transfer are
- The account to which money is sent or fund is transferred or credited is known as the beneficiary’s account.
- Remitter is an account holder who sends the payment to the beneficiary account through Third Party Fund Transfer.
- Real Time Gross Settlement (RTGS): In RTGS, the beneficiary bank has to credit the the beneficiary’s account within two hours of receiving the funds transfer message.
- National Electronic Funds Transfer (NEFT) is done on net basis.This means bank club transactions together and only the net amount is transferred.
What are the requirements for Third Party Fund Transfer?
For Third Party Fund Transfer requirements are:
- One needs to be registered for Net banking
- One needs to be registered for Third Party Transactions
- One needs to register the beneficiary’s Account i.e the account to which we need to transfer funds.
How to register for Third Party FundTransfer?
Each bank has it’s own policy to register Third Party transfer transactions. Some allow submitting the request through Netbanking and some ask for a physical form to be submitted for example HDFC bank allows both net banking and physical submission of the form.
For example HDFC bank Third Party Transfer steps are:
- Login to NetBanking using your Customer ID and IPIN
- Click on the ‘Third Party Transfer Tab’ and follow the instructions
- A One time Password ( OTP) would be sent to your registered mobile number
How to register the beneficiary’s account for Third Party Fund Transfer?
One needs to register third party account details
- Name of the beneficiary
- Account number of the beneficiary
- The IFSC Code of the beneficiary branch (IFSC Code is unique code allotted by RBI for each Bank/Branch participating in NEFT)
For example adding the beneficiary in HDFC bank account is shown below.
For steps in adding the beneficiary in different bank accounts:
- How to Add a Payee or Beneficiary in your HDFC Bank Account
- SBI bank account Adding beneficiary details
The process and time to enable beneficiary account depends on the bank policy. For example, For banks like State Bank of India/HDFC Bank, one receives a high-security password in the registered mobile number to approve this third party. On approval, the third party becomes a beneficiary to your accounts. For banks like HDFC Bank if one is registered for Third Party Transactions one needs to just fill the beneficiary details and confirm. It takes 12 hrs for beneficiary activation due to security reasons.
Please note the validity of the beneficiary’s account is the sole responsibility of the Third Party Fund Transfer user
What is the IFSC code?
IFSC or Indian Financial System Code is a special code given to every bank branch in India. It is a 11 digit code with the first 4 characters being the abbreviation of the Bank followed by a control character in the fifth place and then the branch code will represent the last 6 characters.
For example, the IFC code of SBI Main branch in Kolkata is given the code SBIN0000001.
All the banks have also been advised to print the IFSC of the branch on cheques issued by branches to their customers as shown in image below . IFSC code is along with the address of the bank branch.
IFSC code is available on RBI webpage (Excel file). You can also find at bankifsccode.com
How is IFSC code different from MICR code?
MICR is an acronym for Magnetic Ink Character Recognition. It is a 9 digit code to identify the location of the bank branch; the first 3 characters represent the city, the next 3 the bank and the last 3 the branch. The MICR Code allotted to a bank branch is printed on the MICR band of cheques issued by bank branches. In the image above it is shown in red at the bottom of the cheque.
The MICR Code is a numeric code that uniquely identifies a bank-branch participating in the ECS Credit scheme.
ECS Credit is used by an institution for affording credit to a large number of beneficiaries (for instance, employees, investors etc.) having accounts with bank branches at various locations within the jurisdiction of a ECS Centre by raising a single debit to the bank account of the user institution. ECS Credit enables payment of amounts towards distribution of dividend, interest, salary, pension, etc., of the user institution.
How to send money to beneficiary’s account ?
Activating the third party transfer for one beneficiary is one time activity. Once a beneficiary is activated by the branch, you can send the money when ever you want. All you need to do is select the beneficiary account and the amount.
For steps with images of third party transfer in different banks:
How many beneficiary account can be added?
You can add many beneficiary account. Maximum number of beneficiary account differs from bank to bank. For example, the maximum number of beneficiary registration for each type of fund transfer in HDFC bank is 50.
Can I receive money through Third Party Fund transfer?
No. Transactions can be originated only to transfer or remit funds to a beneficiary not to receive. In banking language third party transfer is called as a credit-push system.
Difference between NEFT and RTGS?
For understanding NEFT, RTGS one can read Reserve Bank of India (RBI) FAQ on Real Time Gross Settlement, National Electronic Funds Transfer. The difference is given below:
|Full Form||National Electronic Fund Transfer||Real Time Gross Settlement|
|Settlement||NEFT operates in hourly batches – there are twelve settlements from 8 am to 7 pm on week days (Monday through Friday) and six settlements from 8 am to 1 pm on Saturdays.||Real time (Faster)9:00 am – 4:30 pm on Weekdays and9:00 am – 1:30 pm on Saturday|
|Minimum amount of money transfer limit||No Minimum||2 lakh|
|Maximum amount of money transfer limit||No Limit *||No Limit *|
|When does the Credit Happen in beneficiary account||Happens in the hourly batch Between Banks||Real time between Banks|
|Inward transactions (person who receives)||Free, no charge to be levied||Free, no charge to be levied|
|Maximum Charges as per RBI for outward (person who sends)||Upto 10,000 – Rs 2.5
from 10,001 – 1 lac – Rs 5
from 1 – 2 lacs – Rs 15Above 2 lacs – Rs 25
Above 2 lacs – Rs 25
Above 2 lacs – Rs 25
|Rs 25-30 (Upto 2 – 5 lacs)
Rs 50-55 (Above 5 lacs)
|Suitable for||Transfer of small amount||Transfer of big amounts minimum is 2 lakh|
However, banks may restrict the amount you can transfer in one day. For example, HDFC Bank allows a maximum of Rs 10 lakh to be transferred in a day.
However, the timings that the banks follow may vary depending on the customer timings of the bank branches.
How does NEFT work?
- Step 1: An individual / firm / corporate originate transfer of funds through NEFT by filling information
- Step-2 : The originating bank branch prepares a message and sends the message to its pooling centre (also called the NEFT Service Centre).
- Step-3 : The pooling centre forwards the message to the NEFT Clearing Centre (operated by National Clearing Cell, Reserve Bank of India, Mumbai) to be included for the next available batch.
- Step-4 : The Clearing Centre sorts the funds transfer transactions destination bank-wise and prepares accounting entries to receive funds from the originating banks (debit) and give the funds to the destination banks(credit). Thereafter, bank-wise remittance messages are forwarded to the destination banks through their pooling centre (NEFT Service Centre).
- Step-5 : The destination banks receive the inward remittance messages from the Clearing Centre and pass on the credit to the beneficiary customers’ accounts.
How does RTGS works?
RTGS is Real Time Gross Settlement. Real Time implies that the payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. Gross means that the transaction is settled on a one-to-one basis without bunching with any other transaction. Settlement means The transfer takes place in the books of the RBI and the payment is considered as final and irrevocable.
- As the payer submits the RTGS instruction slip, the remitting bank feeds the details in its central processing system.
- The processing system retains the original message and sends only a subset of instructions to the central coordinating bank, that is, the RBI. Instructions given to the central bank include all relevant details like the amount to be remitted and the identity of the sending and beneficiary branch.
- The settlement of the transaction is done by the central bank.
- An irrevocable settlement of the transaction by the RBI is recorded, that is, the apex bank debits the issuing bank’s account and credits the beneficiary bank’s account. It also passes this confirmation to the central processing system of the sending bank.
- A unique transaction number (UTN) is generated as a proof of completion of the fund transfer. This UTN is communicated to the sending bank by the apex bank.
- As previously only a subset of instructions was sent to the RBI, the sending bank’s central processor rebuilds the payment message to include entire details of the transaction and sends it to the receiving bank.
- After receiving this message from the sending bank, the receiving bank’s central processing system transfers the requisite amount to the account of the beneficiary.
- The UTN acts as a receipt/acknowledgement of the transfer of funds. This completes the RTGS process.
Is Third Party Fund Transfer popular?
For retails customers(i.e non-corporate) Payment by cheque is still the most popular way but third party transfer is catching up. Reserve Rank of India (RBI) publishes bulletien every month and annual reports on payment system indicators, economic factors,inflation etc. From Annual report on Payment and Settlement Systems and Information Technology (Aug 2012) the volume of different payment system, value of money transacted using different payment system by people(retail) is given below.
|Retail Electronic Clearing||Volume (million)||Value (trillion)|
|5. MICR Clearing||1,149.7||1,155.1||1,114.5||85.3||83.0||80.2|
|6. Non-MICR Clearing||230.6||232.3||227.0||18.8||18.3||18.8|
|Retail Electronic Clearing|
|7. ECS DR||149.3||156.7||164.7||0.7||0.7||0.8|
|8. ECS CR||98.1||117.3||121.5||1.2||1.8||1.8|
|Total Retail Electronic Clearing||313.7||406.3||512.3||6.0||11.9||20.6|
|10. Credit Cards||234.2||265.1||320.0||0.6||0.8||1.0|
|11. Debit Cards||170.2||237.1||327.5||0.3||0.4||0.5|
|Total Others (5 to 11)||2,098.4||2,295.9||2,501.3||110.9||114.4||121.|