FEMA, MTSS, RRB, Deposits, Cheque
Foreign Exchange Management Act, 1999 (FEMA)
The main objective of Foreign Exchange Management Act, 1999 (FEMA) is to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
It was passed in the winter session of Parliament in 1999, replacing the Foreign Exchange Regulation Act (FERA) due to Foreign exchange reserves were low.
It also paved the way for the introduction of the Prevention of Money Laundering Act, 2002, which came into effect from 1 July 2005.
FEMA is applicable to all parts of India. The act is also applicable to all branches, offices and agencies outside India owned or controlled by a person who is a resident of India.
The FEMA head-office, also known as Enforcement Directorate is situated in New Delhi and is headed by a Director. The Directorate is further divided into 5 zonal offices in Delhi, Mumbai, Kolkata, Chennai and Jalandhar and each office is headed by a Deputy Director.
Remittance Facilities under FEMA Money Changing Activity:
- Authorised Money Changers (AMCs) are entities, authorised by the Reserve Bank under Section 10 of the Foreign Exchange Management Act, 1999. An AMC is a Full-Fledged Money Changer (FFMC).
- FFMCs are authorised (a) to purchase foreign exchange from nonresidents visiting India and residents; and (b) to sell foreign exchange for certain approved purposes.
Money Transfer Service Scheme (MTSS)
- Money Transfer Service Scheme (MTSS) is a quick and easy way of transferring personal remittances from abroad to beneficiaries in India.
- Only inward personal remittances into India such as remittances towards family maintenance and remittances favouring foreign tourists visiting India are permissible.
- No outward remittance from India is permissible under MTSS.
- The system envisages a tie-up between reputed money transfer companies abroad known as Overseas Principals and agents in India known as Indian Agents who would disburse funds to beneficiaries in India at ongoing exchange rates.
- The Indian Agent is not allowed to remit any amount to the Overseas Principal. Under MTSS the remitters and the beneficiaries are individuals only.
- A cap of USD 2,500 has been placed on individual remittances under the scheme. In addition, thirty remittances can be received by a single individual beneficiary under the scheme during a calendar year.
- Amounts up to INR 50,000/- may be paid in cash to a beneficiary in India. These can also be loaded on to a pre-paid card issued by banks. Any amount exceeding this limit shall be paid by means of account payee cheque/ demand draft/ payment order, etc., or credited directly to the beneficiary's bank account. However, in exceptional circumstances, where the beneficiary is a foreign tourist, higher amounts may be disbursed in cash.
Rupee Drawing Arrangements (RDA) :
- Under the Rupee Drawing Arrangements (RDAs), cross-border inward remittances are received in India through Exchange Houses situated in Gulf countries, Hong Kong, Singapore, Malaysia (for Malaysia only under Speed Remittance Procedure) and all other countries which are FATF compliant only under Speed Remittance Procedure.
- No cash disbursement of remittances is allowed under RDA. The remittances have to be credited to the bank account of the beneficiary. ➢ There is no limit on the remittance amount as well as on the number of remittances. However, there is an upper cap of Rs.15.00 lakh for trade related transactions.
The Financial Action Task Force (FATF) is an intergovernmental organization founded in 1989 on the initiative of the G7 to develop policies to combat money laundering. In 2001 its mandate expanded to include terrorism financing. Its headquarters is in Paris, France.
First issued in 1990, the FATF Recommendations were revised in 1996, 2001, and 2003 and most recently in 2012 to ensure that they remain up to date and relevant, and they are intended to be of universal application.
David Lewis joined the FATF as its Executive Secretary in November 2015.
Liberalised Remittance Scheme:-
The Liberalized Remittance Scheme (LRS) is a facility provided by the RBI for all resident individuals including minors to freely remit upto a certain amount in terms of US Dollar for current and capital account purposes or a combination of both. Hence under the LRS, individuals are allowed to spend money in foreign countries for specific purposes like education, tourism, asset purchase etc.
The scheme was introduced on February 4, 2004, with a limit of USD 25,000. But from April 2018, Resident individuals are permitted to make remittances up to USD 250,000 per financial year for any permitted current or capital account transactions or a combination of both as per the regulations prescribed under the Foreign Exchange Management (Current Account Transactions) Rules, 2000, as amended from time to time, and the Foreign Exchange Management Act, 1999 (FEMA) or the rules or regulations framed thereunder.
Conditions under LRS:
- Banks are required to furnish the information on remittances made under the Liberalised Remittance Scheme (LRS) on a monthly basis, on or before the fifth of the following month to which it relates through Online Returns Filing System (ORFS) for which purpose they have been given user ID and password by the Reserve Bank. Where there is no data to furnish, AD banks are advised to upload ‘nil’ figures in the ORFS system.
- Transactions relating to LRS are required to be reported in Foreign Exchange Transactions Electronic Reporting System (FETERS) to Department of Statistics and Information Management (DSIM). ➢ It is mandatory for the resident individual to provide his/her Permanent Account Number (PAN) to make remittance under the Scheme. ➢ Individuals can avail of foreign exchange facility for the purposes within the limit of USD 2,50,000 only.
Rupee Denominated Bond:
A rupee denominated bond is a bond issued by an Indian entity in foreign markets and the interest payments and principal reimbursements are denominated (expressed) in rupees.
The term ‘masala bond’ is also used to describe rupee denominated ever since the first issuer of rupee-denominated bonds used the name masala bonds in its first issue.
- Any corporate (entity registered as a company under the Companies Act, 1956/ 2013) or body corporate (entity specially created out of a specific act of the Parliament) and Indian banks are eligible to issue Rupee denominated bonds overseas.
- The Rupee denominated bonds can only be issued in a country and can only be subscribed by a resident of a country: that is a member of Financial Action Task Force (FATF) or a member of a FATF-Style Regional body.
- The minimum maturity period for Masala Bonds raised up to USD 50 million equivalent in INR per financial year should be 3 years and for bonds raised above USD 50 million equivalent in INR per financial year should be 5 years. ➢ In case the subscription to the bonds/ redemption of the bonds is in tranches, minimum average maturity period should be 3/5 years, as mentioned above.
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act)
The SARFAESI Act is an Indian law which allows banks and other financial institution to auction residential or commercial properties to recover loans. It gives powers of “Seize and Desist” to banks.
Banks can give a notice in writing to the defaulting borrower requiring it to discharge its liabilities within 60 days. If the borrower fails to comply with the notice, then banks are allowed to take possession of the collateral property and sell it without the permission of a court under this act.
This law allowed the creation of Asset Reconstruction Companies (ARC) and allowed banks to sell their non-performing assets to ARCs. The first asset reconstruction company (ARC) of India, ARCIL, was set up under this act.
- SARFAESI is effective only for secured loans where bank can enforce the underlying security eg. Hypothecation, pledge and mortgages. This law does not apply to unsecured loans, loans below Rs.100,000 or where remaining debt is below 20% of the original principal.
- The Debt has been classified under Non-Performing Assets by the banks.
- This act is not applicable to an Agricultural land.
It is used for creating charge against the security of movable assets, but here the possession of the security remains with the borrower itself. Thus, in case of default by the borrower, the lender (i.e. to whom the goods / security has been hypothecated) will have to first take possession of the security and then sell the same.
Example: Car Loans (In this case Car / Vehicle remains with the borrower but the same is hypothecated to the bank / financer. In case the borrower, defaults, banks take possession of the vehicle after giving notice and then sell the same and credit the proceeds to the loan account)
It is used when the lender (pledge) takes actual possession of assets (i.e. certificates, goods). Such securities or goods are movable securities. In this case the pledgee retains the possession of the goods until the pledgor (i.e. borrower) repays the entire debt amount. In case there is default by the borrower, the pledgee has a right to sell the goods in his possession and adjust its proceeds towards the amount due (i.e. principal and interest amount).
Example: Gold /Jewellery Loans, Advance against goods/stock, Advances against National Saving Certificates etc
It is used for creating charge against immovable property which includes land, buildings or anything that is attached to the earth or permanently fastened to anything attached to the earth (However, it does not include growing crops or grass as they can be easily detached from the earth). It is defined in Section 58 of the Transfer of Property Act 1882.
Example: When mortgage is created is when someone takes a Housing Loan / Home Loan. In this case house is mortgaged in favour of the bank / financer but remains in possession of the borrower, which he uses for himself or even may give on rent
Scheduled Co-operative Banks:-
It is a retail and commercial banking organized on a cooperative basis. ➢ Primary Cooperative Credit Society – Association of borrowers and non-borrowers. Funds of society are derived from members.
- District Central Cooperative Bank – Functions at District level only.
- State Cooperative Bank – Apex Body is the State Govt.
- Land Development Bank – Long term loans to farmers. No deposits from public.
- Urban Cooperative Bank –Banking Activities at State level.
Regional Rural Banks (RRBs)
The First Established Regional Rural Bank among all RRBs in India was the Prathama Bank, which was established in 1975. With The authorised capital of Rs. 5 crore.
Under the Recommendations of Narshimham Committee RRBs was formed. Initially the authorised capital for RRBs in India was Rs. 100 crore ($10 Million) which later augmented to 500 crore ($50 million).
Regional Rural Banks (RRBs) are scheduled commercial banks
(Government banks) operating at regional level in different States of India. They have been created with a view to serve primarily the rural areas of India with basic banking and financial services. However, RRBs may have branches set up for urban operations and their area of operation may include urban areas too.
The area of operation of RRBs is limited to the area as notified by Government of India covering one or more districts in the State. RRBs also perform a variety of different functions.
The Regional Rural Banks were owned by the Central Government, the State Government and the Sponsor Bank (Any commercial bank can sponsor the regional rural banks) who held shares in the ratios as follows Central Government – 50%, State Government – 15% and Sponsor Banks – 35%.
Indian had 57 Regional Rural Banks in which Uttar Pradesh has highest number of RRBs.
RRBs perform various functions:
- Providing banking facilities to rural and semi-urban areas. ➢ Carrying out government operations like disbursement of wages of MGNREGA workers, distribution of pensions etc.
- Providing Para-Banking facilities like locker facilities, debit and credit cards.
- Small financial banks.
TYPES OF ACCOUNTS IN BANKS
There are mainly three types of deposits accounts in banks. They are
- Demand Deposits
- Time Deposits
- Non- Resident Deposits
1. Savings Accounts
- A savings account allows you to accumulate interest on funds you’ve saved for future needs. Interest rates can be compounded on a daily basis.
- Savings accounts vary by monthly service fees, interest rates, method used to calculate interest, and minimum opening deposit.
- In these type of accounts, we have salary or student account etc.
2. Current Accounts
- Current Accounts are basically meant for businessmen and are never used for investment or savings.
- These deposits are the most liquid deposits and there are no limits for number of transactions or the amount of transactions in a day.
- Most of the current account are opened in the names of firm / company accounts.
- No interest paid by banks on these accounts. On the other hand, banks charges certain service charges, on such accounts.
- In this type of account do not contain any fixed maturity as these are on continuous basis accounts. Overdraft facility is available in this account.
3. No Frill Accounts:
- Banks were advised in November 2005 to make available a basic banking 'no-frills' account either with 'nil' or very low minimum balance as well as charges that would make such accounts accessible to vast sections of population.
- No frill account is a type of bank account, with low / Zero balance requirement with extra-features removed.
- RBI came up with this No-frill concept, because poor people cannot open regular bank accounting having requirements like Rs.5000/- minimum balance etc.
Basic Savings Bank Deposit Account (BSBDA) :
- According to the RBI guidelines August 2012, Basic Savings Bank Deposit (BSBD) account has been created under the Financial Inclusion, which has a zero minimum balance requirement, can be opened by people who do not want to be bothered with maintaining any minimum balance.
- A BSBD account does not require customers to maintain any monthly average balance. KYC Norms is applicable to these accounts.
- Since BSBD is a type of savings account, the eligibility of a customer to open this account and interest rates offered by it are the same as savings bank accounts.
The customer cannot have any other savings bank account, if he/she has a basic savings bank deposit account in a bank. An individual is eligible to have only one 'Basic Savings Bank Deposit Account' in one bank.
• If the customer already has a savings bank account, the same will have to be closed within 30 days of opening a Basic Savings Bank Deposit or BSBD account. There is no charge on activation of inoperative BSBD accounts and no-account closure charges.
- Total credits in such accounts should not exceed one lakh rupees in a year.
- Maximum balance in the account should not exceed fifty thousand rupees at any time.
- The total of debits by way of cash withdrawals and transfers will not exceed ten thousand rupees in a month.
- Foreign remittances cannot be credited to Small Accounts without completing normal KYC formalities.
- Small accounts are valid for a period of 12 months initially which may be extended by another 12 months if the person provides proof of having applied for an Officially Valid Document.
- Small Accounts can only be opened at CBS linked branches of banks or at such branches where it is possible to manually monitor the fulfilments of the conditions
4. Current Account Savings Account (CASA) :
- CASA deposit is the amount of money that gets deposited in the current and savings accounts of bank customers. It is the cheapest and major source of funds for banks. The savings accounts portion pays more interest compared to current accounts.
- A CASA operates like a normal bank account in which funds may be utilized at any time. Because of this flexibility, a CASA has a lower interest rate than a term deposit because the bank does not have a guarantee that all the funds are available to lend for a specific period of time.
- These deposits can move out of banks’ books anytime, leading to assetliability mismatches. While in case of term deposits, banks are almost certain that the depositor may not withdraw money before the maturity of the deposit and may also renew the deposit on maturity.
- The CASA ratio shows how much deposit in a bank has in the form of current and saving account deposits in the total deposit.
- A higher CASA ratio means higher portion of the deposits of the bank has come from current and savings deposit, which is generally a cheaper source of fund. Hence, higher the CASA ratio better the net interest margin, which means better operating efficiency of the bank.
- Net interest margin is difference between total interest income and expenditure and is shown as a percentage of average earning assets.
1. Recurring Deposits Account:
- These are popularly known as RD accounts and are special kind of Term Deposits and are suitable for people who do not have lump sum amount of savings but are ready to save a small amount every month.
- Normally, such deposits earn interest on the amount already deposited (through monthly installments) at the same rates as are applicable for Fixed Deposits / Term Deposits.
- These are best if you wish to create a fund for your child's education or marriage of your daughter or buy a car without loans or save for the future.
- The RD interest rates paid by banks in India are usually the same as payable on Fixed Deposits, except when specific rates on FDs are paid for particular number of days.
- Recurring Deposit accounts are normally allowed for maturities ranging from 6 months to 120 months (10 Yrs).
- These accounts can be opened in single or joint names. Nomination facility is also available.
2. Fixed Deposits Accounts:
- All Banks in India (including SBI, PNB, ICICI Bank, Yes Bank etc.) offer fixed deposits schemes with a wide range of tenures for periods from 7 days to 10 years.
- These are also popularly known as FD accounts. However, in some other countries these are known as "Term Deposits" or "Bond".
- The term "fixed" in Fixed Deposits (FD) denotes the period of maturity or tenor. Therefore, the depositors are supposed to continue such Fixed Deposits for the length of time for which the depositor decides to keep the money with the bank.
In case of urgent need, depositor can close the account prematurely by paying penalty. Penalty and Interest rate varies from different banks.
NON- RESIDENT DEPOSIT ACCOUNTS
This type of account only applicable for Non- Resident Indians. They are
- NRO (Non-Resident Ordinary Rupees) Account
- NRE (Non-Resident External Rupees) Account
- FCNR (Foreign Currency Non-Resident) Account
NRI Accounts: There are different types of bank accounts for Indians or Indian-origin people living outside India.
(i) NRO (Non-Resident Ordinary) Accounts: NRO Accounts has two category NRO savings accounts and NRO fixed deposit accounts. When Non-Resident Indian (NRI) deposits money in foreign currency in this account, it is converted into INR (Indian national rupee). NRI can park his money earned in India as well as overseas in NRO bank accounts. The income earned is taxable on this deposit account.
(ii) NRE (Non- Resident External) Accounts: NRE Accounts has also categories of savings and fixed deposit accounts. Like NRO account, funds are converted in INR at the prevailing exchange rate. In NRE accounts one can park only his earnings from abroad and the funds, both principal and interest earned on it, are transferable.
(iii) Foreign currency non-resident (FCNR) account: The FCNR account is maintained in foreign currency, not in INR. The funds, the principal, and interest earned from this account are transferable, but the interest in not taxed in India.
NEGOTIABLE INSTRUMENTS ACT, 1881
An Act to define and Law relating to negotiable instruments which are Promissory Notes, Bills of Exchange and cheques (as per section 13). Various other paper instruments like a Banker's cheque, Payment order, Payable 'At Par' cheques (Interest/Dividend warrants, refund orders, gift cheques etc.), are also used to cater to the specific payment needs. The statutory basis for these instruments was provided by the Negotiable Instruments Act, 1881 (NI Act).
Bank Holidays are declared by Central/State Governments/ Union Territory under the Negotiable Instruments (NI) Act, 1881.
Some of the important sections of the Act:
- Section 4 - Promissory note
- Section 5 - Bill of exchange
- Section 6 – Cheque
- Section 15 - Endorsement
A "promissory note" is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument. Bank notes are frequently referred to as promissory notes, a promissory note made by a bank and payable to bearer on demand.
A promissory note is a written agreement to pay a specific amount to specific party at a future date or on demand.
- It must be in writing.
- It must contain an unconditional promise to pay.
- It should be signed by the maker.
- The payment should be made to a certain person.
- The certainty of the amount payable should be there.
- It should be stamped.
Bill of exchange
A Bill of Exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.
The bill of exchange is defined as written order for payment issued by the creditor to his debtor.
- Bills of exchange must be in writing.
- Bills of exchange are not a request to pay and an order to pay.
- The order must be signed by the drawer, i.e. the maker.
- The order must be for the payment of money only.
Difference between Promissory Notes and Bill of exchange
Cheque and its Different Types
Cheque is an instrument in writing containing an unconditional order, addressed to a banker, sign by the person who has deposited money with the banker, requiring him to pay on demand a certain sum of money only to or to the order of certain person or to the bearer of instrument.
A cheque is a document that orders a bank to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued.
Parts of a Cheque
The four main items on a cheque are:-
- Drawer, the person or entity who makes the cheque (The person who issue the cheque or hold the account with bank)
- Payee, the recipient of the money (A person whose name is mentioned in the cheque or to whom the drawee makes payment. If drawer has drawn the cheque in favour of self, then drawer is payee)
- Drawee, the bank or other financial institution where the cheque can be presented for payment. (The Person who is directed to make the payment against cheque)
- Amount, the currency amount
History of Cheques in India
- The Cheque was introduced in India by the Bank of Hindustan. In 1881, the Negotiable Instruments Act was enacted in India. The NI Act provided a legal framework for non-cash paper payment instruments in India.
- In 1938, the Calcutta Clearing Banks’ Association, which was the largest bankers’ association at that time, adopted clearing house.
- Until 1 April 2012, cheques in India were valid for a period of six months from the date of their issue, before the Reserve Bank of India issued a notification reducing their validity to three months from the date of issue.
Different Types of Cheque:
1) Open cheque or bearer cheque:
- The issuer of the cheque would just fill the name of the person to whom the cheque is issued, writes the amount and attaches his signature and nothing else.
- When the word “Bearer” on the cheque is not crossed or cancelled, the cheque is called a bearer cheque. This type of issuing a cheque is also known as open cheque or uncrossed cheque.
- In simple words, Bearer cheque means the person who is holding the instrument can withdraw money from the bank account.
- In case of cheque is lost, person who find it can collect payment from the bank. So, issuing these types of cheques are risky.
2) A crossed cheque or an account payee cheque:
- It is written in the same as that of bearer cheque, but issuer can cross it by adding two parallel lines on the right hand top corner.
- This type of cheque cannot be encashed over the counter. Considered as safest type of cheque, it can only be credited to payee’s account whose name is mentioned in the Cheque.
3) Order Cheque:
- When the word “bearer” appearing on the face of a cheque is cancelled and when in its place the word “or order” is written on the face of the cheque, the cheque is called an order cheque.
- In case of order cheque the payee in whose name the cheque has been issued can only withdraw the money.
- Such a cheque is payable to the person specified therein as the payee, or to any one else to whom it is endorsed (transferred).
4) Post Dated Cheque (PDCs) :
- PDCs are cheques issued with future date on it. The cheque issued today will be vailed for three months from the date of issue.
- It is used for business purposes or making of payment in future date.
- For example; on 11/1/2015 you are issuing it dated 15/4/2015 than it will called postdated cheque and will be vailed for three months from 15/4/2015.
5) Anti Dated Cheque:
- If a cheque bears a date earlier than the date on which it is presented to the bank, it is called as “anti-dated cheque”.
- Such a cheque is valid up to three months from the date of the cheque.
For example, on 11/1/2015 you are issuing a cheque dated 1/1/2015 than it will called anti dated cheque and will be vailed for three months form 1/1/2015.
6) Stale Cheque:
• If a cheque is presented for payment after three months from the date of the cheque, it is called stale cheque. A stale cheque is not honoured by the bank.
7) Multilated Cheque:
- If a cheque is torn into two or more pieces such cheque is Mutilated Cheque.
- If it presented for payment, such a cheque the bank will not make payment against such a cheque without getting confirmation of the drawer.
- In case, if a cheque is torn at the corners and no material fact is erased or cancelled, the bank may make payment against such a cheque. Note: Cheques in India were valid for a period of three months from the date of their issue.
Crossing of Cheques
- Crossing of Cheques means to draw two lines transverse parallel on left hand corner of the cheque.
- It directs the bank to deposit the money directly into the account and not to be pay cash at the bank counter.
Types of Crossing
➢ General Crossing -
- When a cheque bears two transverse parallel lines at the left hand of its top corner.
- Words such as 'and company' or & co. may be written between these two parallel lines, either with or without words 'not negotiable', is called General Crossing.
- Payment can be paid through bank account only. They cannot be encashed over the counter by bearer or payee.
- Both bearer and order cheques can be crossed. However, drawer can make it bearer cheque by canceling the crossing, writing that CROSSING IS CANCELLED and Putting full signature verifying the crossing cancellation.
➢ Special Crossing
- When a cheque bears the name of the bank in between the two parallel lines, with or without the words 'not negotiable' is called Special Crossing.
- The bank will pay to the banker whose name is written in between the crossing lines.
➢ Restrictive Crossing / Account Payee Crossing
- In this, crossing of cheques is done by writing Account Payee or Account Payee only in between the crossing lines.
- Payment will be credited to the account of payee named in the cheque.
➢ Double Crossing
- When a cheque bears two special crossing, is called Double Crossing.
In this second bank act as agent of the first collecting banker.
- It is made when the banker in whose favour the cheque is crossed does not have branch where the cheque is paid.
Cheque Truncation System (CTS)
Cheque Truncation System (CTS) or Image-based Clearing System (ICS), in India, is a project of the Reserve Bank of India (RBI), commencing in 2010, for faster clearing of cheques. CTS is based on a cheque truncation or online image-based cheque clearing system where cheque images and Magnetic Ink Character Recognition (MICR) data are captured at the collecting bank branch and transmitted electronically. Cheque truncation means stopping the flow of the physical cheques issued by a drawer to the drawee branch.
A bank issues a demand draft to a client (drawer), directing another bank (drawee) or one of its own branches to pay a certain sum to the specified party (payee).
Difference between Cheque and Demand Draft
Cheque is issued by customer
Demand draft issued by bank
In cheque payment is made after presenting cheque to bank
DD is given after making payment to bank.
Cheque can bounce due to
DD cannot be dishonored as amount is paid before hand
Payment of cheque can be stopped by drawee
Payment cannot be stopped in DD
A cheque can be paid to bearer or order
DD is paid to person on order
In cheque drawer and payee are different person
DD, both parties are banks
A cheque needs signature to transfer amount
DD does not require signature to transfer funds
It is defined in negotiable instruments act 1881.
Although it is a negotiable instrument, but it’s not defined in act.
No bank charges.
Different banks charge differently for issue of DD.
Payment And Settlement Systems In India
Payment and settlement systems in India are payment and settlement systems in India for financial transactions. They are covered by the Payment and Settlement Systems Act, 2007 (PSS Act), legislated in December 2007 and regulated by the Reserve Bank of India and the Board for Regulation and Supervision of Payment and Settlement Systems. India has multiple payments and settlement systems, both gross and net settlement systems. For gross settlement India has a Real Time Gross Settlement (RTGS) system called by the same name and net settlement systems include Electronic Clearing Services (ECS Credit), Electronic Clearing Services (ECS Debit), credit cards, debit cards, the National Electronic Fund Transfer (NEFT) system and Immediate Payment Service (IMPS).
RTGS (Real Time Gross Settlement)
- The acronym ‘RTGS’ stands for Real Time Gross Settlement, which can be defined as the continuous (real-time) settlement of funds transfers individually on an order by order basis (without netting).
- The RTGS system is primarily meant for large value transactions.
- The beneficiary bank has to credit the recipient's account within 30 minutes of receiving the funds transfer message.
Processing Charges / Service Charges for RTGS transactions:
- With a view to rationalize the service charges levied by banks for offering funds transfer through RTGS system, a broad framework has been mandated as under:
- Inward transactions – Free, no charge to be levied.
- Outward transactions – `2 lakh to ` 5 lakh - not exceeding ` 30.00 per transaction;
Above ` 5 lakh – not exceeding ` 55.00 per transaction.
NEFT (National Electronic Funds Transfer)
- National Electronic Funds Transfer (NEFT) is a nation-wide payment system facilitating one-to-one funds transfer. NEFT is an electronic fund transfer system that operates on a Deferred Net Settlement (DNS) basis which settles transactions in batches.
- Under this transfer, individuals, firms and corporates can electronically transfer funds from any bank branch to any individual, firm or corporate having an account with any other bank branch in the country participating in the transfer. However, NEFT has no limit - either minimum or maximum - on the amount of funds transferred.
- In case of Individuals who do not have a bank, account can also deposit cash using NEFT. However, such cash remittances are restricted to a maximum of Rs. 50,000 per transaction.
- The NEFT system also facilitates one-way cross-border transfer of funds from India to Nepal and it is known as the Indo-Nepal Remittance Facility Scheme. However, the remittances are restricted to a maximum of Rs.
50,000 per transaction in this type of scheme.
Processing or Service Charges for NEFT Transactions
The structure of charges that can be levied on the customer for NEFT is given below:
- Inward transactions at destination bank branches (for credit to beneficiary accounts) – Free, no charges to be levied on beneficiaries
- Outward transactions at originating bank branches – charges applicable for the remitter
For transactions up to Rs. 10,000 - Rs.2.50 (+ Applicable GST)
For transactions above Rs.10,000 up to Rs.1 lakh - Rs.5 (+ Applicable GST)
For transactions above Rs.1 lakh and up to Rs.2 lakhs - Rs.15 (+ Applicable
For transactions above Rs.2 lakhs - Rs.25 (+ Applicable GST)