Starting from December, National Electronic Funds Transfer (Neft) transactions will be available round the clock, unlike RTGS — real time gross settlements — there’s no cap on the amount of money transfer, though for retail payments banks have set the voluntary cap of up to `2 lakh.
Recently, the central bank also waived Neft processing charges to lower transaction costs and together with round-the-clock transfer facility, it’s expected that inter banks digital fund transfers will likely increase.
Interestingly, a recent internal Reserve Bank of India (RBI) study found that much of the transactions are among private, public and foreign banks — constituting 83 and 87 per cent in March and April respectively — while several cooperative, regional rural, payments and small finance banks are yet to burst onto the scene.
Cooperative banks, though, outnumber public, private and foreign banks, contribute to payment traffic in terms of volume and value remains insignificant. It’s because, public, private and foreign banks share direct transaction linkage with each other, unlike smaller, and cooperative banks that don’t have such direct linkages. In such cases, bigger cooperative banks and payment and small finance banks act as bridges between banks leading to higher betweenness among cooperative, small finance and payments banks.
Private lenders followed by public sector banks (PSBs) are the biggest players both in terms of volume and value. State-run banks are also net receivers with inflows exceeding 40 per cent in both months, far exceeding their outflows of about 31 per cent.
India’s top 20 banks include 10 PSBs, 6 private sector and 4 foreign banks, while the sub-network of these banks contribute about 64 per cent of the payment traffic by volume and payment banks feature. From a systemic perspective, these 20 banks have a large share in the payments value and volume. Settlement failures among them can cause operational interruptions having implications for the stability of entire payment/financial system.
An interesting insight is that some foreign banks, despite their relatively small share of 5.7 per cent in total assets of scheduled commercial banks.
Neft traces its origins to the erstwhile Electronic Funds Transfer, the first payment system that enabled one-to-one fund transfers introduced in late 1990s and was operational in 15 major centres. In 2005, it was replaced with Neft.
With over 210 entities including all scheduled commercial banks participating in Neft, it’s the largest payment system the RBI operates in terms of transaction volume. Typically, settlements of fund transfer requests happen every 30 minutes starting from 8 am to 7 pm on all bank working days.
Beneficiaries are entitled to get credit within two business hours from the batch in which the transaction was settled. If transactions aren’t credited or returned within the stipulated time, banks are liable to pay penal interest to affected customers calculated at the current RBI liquidity adjustment facility repo rate plus 2 per cent for the period of delay/till the date of refund as the case may be.