What is NEFT and how it works?

The National Electronic Funds Transfer or NEFT is a nationwide centralised payment system owned and operated by the Reserve Bank of India (RBI).
 
The objective of NEFT was to establish an efficient, secure and economical electronic fund transfer system.
 
NEFT is now available round-the-clock on all days of the year. Before December 2019, NEFT transactions were settled between 8 am to 7 pm on weekdays. And from 8 am to 1 pm on the first and third Saturdays. The system remained unavailable.

The electronic system offers near-real-time funds transfer to the beneficiary account and settlement in a secure manner. The RBI does not levy any charges from member banks for NEFT transactions.
 
On credit to the beneficiary account, the remitter will receive confirmation via SMS or email. Besides funds transfer, NEFT system can be used for payment of credit card dues to the card-issuing banks, payment of loan EMI, inward foreign exchange remittances and more.
It is also available for one-way funds transfers from India to Nepal.
 
But, how does the NEFT system operate? An individual or an organisation willing to transfer funds through NEFT can use the internet or mobile banking facility by initiating the transfer request. The remitter has to provide details of the beneficiary and bank account for the addition of the beneficiary to the internet or mobile banking module.
 
Following beneficiary addition, the remitter can initiate online NEFT funds transfer by authorising debit to his/her account. Alternatively, the remitter can also visit the bank for initiating NEFT funds transfer. Following this, the originating bank prepares a message and sends the message to its pooling centre, also called the NEFT Service Centre.
 
The pooling centre forwards the message to the NEFT Clearing Centre, operated by the RBI, to be included for the next available batch.
 
The Clearing Centre sorts the fund transfer transactions and prepares accounting entries to receive funds from the originating banks and redirect them to the beneficiary banks. Thereafter, remittance messages are forwarded to the beneficiary banks through their pooling centres.
 
While the RBI has not imposed any limit on the amount that can be remitted through NEFT, banks may place limits based on their own risk perception
 
The beneficiary banks receive the inward remittance messages from the Clearing Centre and pass on the credit to the beneficiary customers’ accounts.
 
A person having no bank account can remit funds through NEFT to a beneficiary having a bank account. It can be done by depositing cash at the NEFT-enabled branch of any bank. Such cash remittances are, however, restricted to a maximum of Rs 50,000 per transaction.
 
NEFT presently operates in batches at half-hourly intervals throughout the day. In case of non-availability of NEFT for any reason, appropriate messages are broadcast by RBI to all system participants.
 
With effect from January 01, 2020, banks have been advised to not levy any charges from their savings bank account holders for NEFT funds transfers initiated online.
 
The maximum charges for outward transactions at originating banks for other transactions have been prescribed by the RBI. 
 
The remitter and the beneficiary can track the status of NEFT transactions by contacting NEFT Customer Facilitation Centre (CFC) of the bank. The beneficiary customer receives the funds only after final settlement takes place between the banks.
 

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