Electronic modes of payment have become significantly more popular than traditional modes in recent times. Not only are electronic fund transfers much faster, but they also offer a host of advantages, including lower costs, higher security, and better integration. NEFT (National Electronics Fund Transfer) is one of the most popular electronic fund transfer systems, offering a number of benefits to its users.

In the following sections, we will learn more about NEFT, including how it works, its benefits, requirements, and more. 

NEFT Full Form In Banking

NEFT’s full form in banking is National Electronics Fund Transfer. First introduced by the Reserve Bank of India in 2005, it’s an electronic fund transfer mode available nationwide. 

What is NEFT?

With NEFT, bank customers can send money individually from one bank account to another. Fund transfers through NEFT do not happen via real-time processing. Instead, these transactions are processed in batches every half an hour, all day, every day of the week. 

NEFT allows for seamless and secure transactions between banks. The minimum size of transactions doesn’t matter, making NEFT an appropriate choice for all transactions, from salaries and bill payments to remittances and purchases.

How Does NEFT Work?

NEFT is a centralised electronics payments system operated and managed by the RBI. It transfers funds through electronic messages from one bank account to another on a one-to-one basis in 48 half-hour batches throughout the day from 12:30 a.m. to 12:00 a.m. 

Here is a step-by-step explanation of how the NEFT system works:

Step 1: Request for Fund Transfer

Any individual or company who wants to transfer funds can do so via net banking or mobile banking facility or by visiting a bank branch. They must fill in the remitter’s and beneficiary details, including account number, bank branch, IFSC code, etc., and authorise the bank to conduct a transaction. 

Step 2: Processing 

Once the remitter’s bank receives a fund transfer request from a customer, they must forward it to an NEFT service centre. This pooling centre is a central hub for processing transaction requests from different banks. All service centres forward their requests in batches to the NEFT Clearing Centre operated by the RBI in Mumbai. 

Step 3: Settlement of Transactions

The Clearing Centre sorts the request for transfers based on the bank and does the accounting work for originating and beneficiary banks. Transaction messages sorted bank-wise are processed and forwarded to service centres, from where they are forwarded to banks.  

Step 4: Credit to Beneficiary’s Account

Instructions from NEFT’s central system are sent simultaneously to the remitter’s and beneficiary’s banks. The former is instructed to debit the transaction amount, while the latter has to credit it. Funds are thus deducted from one account and transferred to another. 

Step 5: Confirmation

Following a successful transfer of funds, the sender and beneficiary receive notifications from their respective banks. This provides assurance in the transaction. 

Example of NEFT

Let’s use an example to demonstrate how NEFT transactions work. At 11:08 a.m., Mrs. Sharma initiates an NEFT request to transfer ₹10,000 via net banking from Bank A to her friend, Ms. Jain, at Bank B. Meanwhile, another person, Mr Kumar, initiates a NEFT request by filing a NEFT form from Bank C to transfer ₹50,000 to Mr Gupta to cover the purchase of a second-hand bike to Bank B at 11:25 a.m. 

Since both of these transactions are meant for the same bank (Bank B) and are initiated within the same half-hour period, they will be processed in the same batch. This means that at 11:30, Ms Jain and Mr Gupta will receive ₹10,000 and ₹50,000 in their respective bank accounts. 

Benefits of NEFT

Here are some of the most notable benefits of using NEFT for payments:

Round-the-Clock Availability

• According to the Reserve Bank of India guidelines, NEFT is available anytime throughout the day for the entire week and year, with no exceptions. 

No Lower Limits

• NEFT’s minimum transaction limit is ₹1, allowing anyone to carry out NEFT transactions regardless of their size. 
• The maximum limit is ₹2 lakh for each transaction, making NEFT perfect for most daily fund applications.

Cost-effective Payments

• NEFT is one of the most affordable modes of payment for medium—to large-sized transactions since banks charge only nominal fees. 
• It’s much more cost-effective than other available options. 

Availability across India and Nepal

• You can transfer funds to any bank account in India and even send money to Nepal (subject to certain limits). 
• Due to the wide network of banks, you can send payments anywhere in the country.

Ease of Transactions

• You can transfer funds both online and offline. 
• You can use any bank’s net banking or mobile banking facility to transfer funds with a few clicks or visit the nearest branch and pay in cash or cheque.

Prompt Confirmations

• After a successful transaction, both parties, the sender and receiver, receive confirmation messages via SMS. 
• This ensures transparency in transactions by maintaining records. 

High Degree of Safety

• Since the RBI manages and operates the NEFT system, it minimises the chances of loss or theft compared to other fund transfer modes. 
• Several safety protocols are in place to keep funds safe during transfers.

Faster Than Traditional Options

• NEFT transfers are generally faster than cheques or electronic wire transfe₹ 

Ways of NEFT Transfer

The following modes of transfers can be used with NEFT (National Electronics Fund Transfer):

Internet Banking

Also called net banking or e-banking, internet banking is the facility to avail of banking services through the bank’s official website. To transfer funds via net banking, you have to first register for net banking online or via a bank branch. Then, you must add a beneficiary by entering their bank account details before transferring funds.

Mobile Banking

Mobile banking allows a bank’s customers to access its services on internet-enabled smartphones via the bank’s mobile application. To make payments, first download your bank’s official app from the Play Store or App Store and sign up using your banking details. Then, select ‘Pay’ or ‘Fund Transfer’ and add a new beneficiary/payee, entering the payee and payment details. 

Via Bank Branch

You can initiate fund transfers via NEFT by directly going to your nearest bank branch. Ask for an NEFT transfer form and fill in the necessary details. Then, submit this form and your payment (cash or cheque) to initiate a transfer. This mode is ideal for anyone unfamiliar with mobile or internet banking.

NEFT Requirements

To transfer funds via NEFT, you need to have the following information:

• Full name of the beneficiary you want to transfer funds
• Beneficiary’s bank name
• Branch name where the beneficiary holds an account
• Account number 
• IFSC code for the bank branch
• Amount to be transferred 
• Remarks or notes for record keeping (optional)
• Sender’s and beneficiary’s Legal Entity Identifier (for NEFT and RTGS transactions of ₹50 crore and above)

How to Do NEFT Online?

NEFT fund transfers can be done online via internet banking or mobile banking. Here are the steps to follow to transfer funds via NEFT:

• Visit your bank’s official portal and log in to its net banking portal. Alternatively, download the bank’s mobile application and sign in. 
• Navigate to the fund transfer section. It could be labelled ‘Transfers’, ‘Payment’, ‘Fund Transfer’, or ‘Pay’.
• Select ‘NEFT’ among the fund transfer options, including RTGS and IMPS. Select ‘Now’ or ‘Later’ under NEFT, depending on when you want to transfer funds. 
• You can add the details of the beneficiary to whom you want to transfer funds. Click on ‘Add Beneficiary’ and enter details such as name, account number, bank name, etc.
• Double-check the above details and enter the amount you want to transfer.
• Enter the OTP (One-time Password) received in your registered mobile number and click ‘Confirm’.

Upon transfer of the amount to your bank account, you will receive a confirmation via SMS or email.  

How to Do NEFT Offline?

You must visit a nearby bank branch for the offline process and fill out the NEFT form. Next, submit it along with payment. Here are the detailed steps guiding you to transfer funds:

• Visit your nearby bank branch and collect a NEFT form from the customer representative. Alternatively, you can go to the official website and download and print a copy of the form.  
• Start by filling in the branch name, date, and your name. Then, proceed with writing other remitter details and the amount you want to transfer (in words and numbers). 
• Next, write the beneficiary details, including name, account number, bank name, branch, IFSC code, etc. 
• Enter the cheque number or note denomination details based on your payment method. 
• Sign the form and write your name below the signature.
• Submit the duly filed form with a cheque leaf or cash to the bank teller. You will receive a notification once your transaction is processed. 

NEFT Form

An NEFT form is required to initiate a NEFT transaction. The form typically includes essential details such as the sender’s name, account number, and branch details, along with the beneficiary’s name, account number, bank name, and IFSC code to ensure accurate fund transfe₹The transaction amount must be specified in both figures and words. 

Additionally, the mode of payment (cash, cheque, or account debit) should be selected, and the sender must provide a valid signature for authorisation. Once completed, the form must be submitted at the bank branch for processing, after which the funds are transferred as per the bank’s NEFT processing schedule.

Challenges of NEFT 

Here are some of the disadvantages of NEFT you may want to learn about:

Transaction Limits

The maximum limit for each NEFT transfer is ₹2 lakh. Furthermore, different banks have set their daily NEFT transaction limits, which makes bulk transfers unsuitable. 

Delay in Payment Processing

Transactions made via NEFT are not settled instantly. The transactions are processed in half-hour batches, so you can use an alternative payment if you need to make time-sensitive payments. 

Transaction Charges

Banks can set their charges, while the Reserve Bank of India charges nothing for NEFT services. UPI could be a better option for very small transactions as it’s free. Note that the RBI has set a cap on NEFT charges.

Cool-off Period

Once you add a beneficiary using mobile banking or net banking, you must wait a while before initiating fund transfe₹You should wait for at least 30 minutes to 4 hours before you can start a fund transfer. 

Requires NEFT-enabled Banks

To transfer funds via NEFT, the sender and receiver must have accounts in NEFT-enabled banks. However, not all banks support NEFT, and quite a few small banks in the country do not. 

NEFT Timings

The Reserve Bank of India ensures the NEFT system’s round-the-clock availability, i.e., it’s available 24x7x365. In other words, you can carry out NEFT transactions at any time using the online mode. If the problem is at the RBI's end, the central bank will broadcast notifications. 

However, for transactions carried out via the bank branch, each bank has its own NEFT timings within which transactions must be carried out. NEFT also typically remains inactive on Sundays, bank holidays and 2nd and 4th Saturdays. 

NEFT Limit

RBI does not impose any limit on transaction amounts for the NEFT system. However, banks can impose their limits. It’s advisable to check these NEFT limits with each bank and their official websites.

NEFT Charges 

The Reserve Bank of India does not charge anything for providing NEFT services. However, banks can charge a nominal fee to customers and non-customers for NEFT services. Here is a list of applicable fees:

A different set of charges is applicable for remittances to Nepal from India using the NEFT system under the Indo-Nepal Remittance Facility (INRF). These charges range from ₹5 per transaction to ₹500 depending on the remittance amount and the bank. 

NEFT Vs RTGS

The main difference between NEFT (National Electronics Funds Transfer) and RTGS (Real Time Gross Settlement) is how each payment system works. While NEFT means a payment system where transactions are processed in batches, RTGS is a payment system that settles transactions in real time. Here is a detailed overview of their differences: 

Bottom Line

NEFT (full form- National Electronic Funds Transfer) is a convenient system of transferring funds from one bank account to another digitally. It offers a host of benefits, including its 24x7x365 availability, cost-effectiveness, ease of usage, and more. Even those without a bank account can use NEFT to transfer money via cash deposit at a bank. It’s an ideal option for quick and small fund transfers, whether you are sending a gift or paying tuition fees.