What is NEFT?

National Electronic Fund Transfer is an online money transfer service introduced by RBI. It helps to transfer money from one account to other account within Indian financial institutions.

NEFT system started on 21 November 2005. Principally, it is used for small transactions below Rupees 100,000. Also there is no limit on minimum amount you can transfer. You can transfer your funds from any bank accunt to another bank/ branch account, provided both banks have joined NEFT network and have IFSC code.

NEFT Settlement Cycles

NEFT uses settlement cycles for clearing. In a day there are six settlement cycles at 9:30 am, 10:30 am, 12 pm, 1 pm, 3 pm and 4 pm. The messages will be accepted from RBI within each settlement batch. And after settlement cycle they will be distributed to the payee’s bank.

So if you instruct your bank to send funds through NEFT in early morning hours, the transfer will take place on same day. However, the transfer will be in effect on next day, if the instructions are given later on the day.

How does the NEFT System Work?

NEFT system works electronically. First you have to fill up the NEFT application at your bank. The information required in the form is beneficiary’s name, his bank and branch name, his account number and type.

Some banks also allow you to perform NEFT transactions through net banking or ATMs. Cash transaction is also permitted at some banks. In such case, the customer will provide his contact details. So if the transaction fails, the bank can go back to him.

Once you fill up the form, you authorize that branch to debit your account and transfer the specified amount to the beneficiary’s bank account.

Step 1 - Once the bank receives an NEFT order, A SFMS message (Structured Financial Message) is prepared by transferring branch. Then it will be forwarded to its Service Center of NEFT.

Step 2 - The SFMS message is send to the NEFT Clearing Center by the service center. It will be included in the next available settlement. The RBI NEFT Clearing Center is operated by National Clearing Cell, Mumbai.

Step 3 - The funds transfer transactions will be sorted out according to destination bank wise by the Clearing Center. It will then make proper accounting entries to accept funds from remitting bank and to give funds to the beneficiary’s bank. Subsequently, through the NEFT Service Center bank wise remittance messages will be sent.

Step 4 - The beneficiary’s bank receives transfer message from RBI and processes it. In turn it credits the beneficiary’s account.

The charges for transfer through NEFT are very small. Also as compared to other modes of transfer, NEFT transfer is faster. So NEFT is the most appropriate way to transfer small funds.