eventually (mis)

8/7/2019 eventually (mis)

1/26

1 | P a g e

NATIONAL LAW UNIVERSITY, 2010

Project

On

NATIONAL ELECTRONIC FUND TRANSFER: SCOPE ANDIMPLEMENTATION

Submitted towards the partial fulfillment of

The degree of M.B.A.- Finance.

For the course of

MANAGEMENT INFORMATION SYSTEM

Submitted by: Submitted to:

Kapil Solanki Dr. Manmeeta

MBA-Finance (2nd SEM) Associate Professor &Asst. Dean,

Roll no. 244 Faculty of Management

NATIONAL LAW UNIVERSITY

JODHPUR


2/26

2 | P a g e


CONTENTS

SERIAL NUMBER CHAPTERS PAGE

NUMBER

EXECUTIVE SUMMARY 3

OBJECTIVES 4

RESEARCH METHODOLOGY 5

CHAPTER 1 INTRODUCTION: INFORMATION SYSTEMS 6-11

CHAPTER-2 INTRODUCTION: NATIONAL ELECTRONIC FUND

TRANSFER

12-17

CHAPTER-3 COMPARISON OF NEFT SYSTEM WITH

TRADITIONAL BANKING SYSTEM

18-22

CHAPTER-4 CONCLUSION 23

CHAPTER-5 RECOMMENDATION 24

A. LIMITATION 25B. BIBLIOGRAPHY. 26


3/26

3 | P a g e


EXECUTIVE SUMMARY

This work deals with implementation and scope of NEFT.

Chapter one deals with the introduction Information systems.

Chapter two deals with introduction to National Electronic Fund Tranfer.

Chapter three deals with comparison of NEFT system with traditional banking system.

Chapter four provides conclusion of this work.

Chapter six provides various recommendations about NEFT system.


4/26

4 | P a g e


RESEARCH OBJECTIVES

I. To analyze the present working of NEFT system.II. To determine the efficacy of NEFT system for banks.

III. To recommend collective course to banking sector in implementation of NEFT system.


5/26

5 | P a g e


RESEARCH METHODLOGY

My research methodology will be doctrinal as well as non-doctrinal in nature. The data will be

both primary as well as secondary. The survey will be conducted by the means of questionnaire

in which various questions on the topic will be posed. Information would be collected and data

would be tabulated, analysis and recommendation will be made.


6/26

6 | P a g e


CHAPTER-1

INFORMATION SYSTEMS

Introduction to Information System

Information Systems (or IS) is historically defined as a 'bridge' anchored between the business

world and computer science, but this discipline is slowly evolving towards a well-defined

science. Typically, Information Systems (or IS) include people, procedures, data, software, and

hardware (by degree) that are used to gather and analyze information. Specifically computer-

based information systems are complementary networks of hardware/software that people and

organizations use to collect, filter, and process, create, & distribute data. Today, Computer

Information System(s) or CIS is often a track within the computer science field pursuing the

study of computers and algorithmic processes, including their principles, their software &

hardware designs, their applications, and their impact on society. Overall, an IS discipline

emphasizes functionality over design.

In a broad sense, the term Information Systems refers to the interaction between algorithmic

processes and technology. This interaction can occur within or across organizational boundaries.

An information system is not only the technology an organization uses, but also the way in

which the organizations interact with the technology and the way in which the technology works

with the organizations business processes. Information systems are distinct from information

technology (IT) in that an information system has an information technology component that

interacts with the processes components.


7/26

7 | P a g e


Information processing

Information Technology in Banking

Technology has opened up new markets, new products, new services and efficient delivery

channels for the banking industry. Online electronics banking, mobile banking and internet

banking are just a few examples. Information Technology has also provided banking industry

with the wherewithal to deal with the challenges the new economy poses. Informationtechnology has been the cornerstone of recent financial sector reforms aimed at increasing the

speed and reliability of financial operations and of initiatives to strengthen the banking sector.

The IT revolution has set the stage for unprecedented increase in financial activity across the

globe. The progress of technology and the development of worldwide networks have

significantly reduced the cost of global funds transfer. It is information technology which enables

banks in meeting such high expectations of the customers who are more demanding and are also

more techno-savvy compared to their counterparts of the yester years.


8/26

8 | P a g e


They demand instant, anytime and anywhere banking facilities. IT has been providing solutions

to banks to take care of their accounting and back office requirements. This has, however, now

given way to large scale usage in services aimed at the customer of the banks. IT also facilitates

the introduction of new delivery channels--in the form of Automated Teller Machines, Net

Banking, Mobile Banking and the like. Further, IT deployment has assumed such high levels that

it is no longer possible for banks to manage their IT implementations on a standalone basis with

IT revolution, banks are increasingly interconnecting their computer systems not only across

branches in a city but also to other geographic locations with high-speed network infrastructure,

and setting up local area and wide area networks and connecting them to the Internet. As a result,

information systems and networks are now exposed to a growing number.

Banking Information System

The business of financial institutions such as banks and brokerage houses is a business of trust

and information. To succeed, financial institution must manage both assets properly. To manage

their information assets, financial institutions make extensive use of information systems and

information technology, and they have done so for a long time. However, because they are also a

business of trust, they tend to be risk-averse in managing their information. Thus, they tend to

continue using old systems and technologies and methods longer than other businesses.

If we talk of current status of banks, it manage information with multiple legacy systems that run

on one of their mainframe computers. Typically, each of those systems handles one and only one

particular financial instrument. Then there are additional systems that try to consolidate the

information created by the former. Whenever a new financial instrument is created or a variant of

an old one is introduced, banks have to develop a new information system.


9/26

9 | P a g e


Very little is reused, new code is written, and the data is structured separately. In general, there is

very little integration between the different systems even though most financial instruments are

very similar.

Each instrument is still managed with a separate systems (and in some cases with a separate

mainframe computer), but to the user they are presented as a single system. This allows the Bank

to analyze the relationship with each customer based on all their accounts. Furthermore, the use

of object-oriented technology allows the banks IT to have faster response time to new systems

and new instruments. It also allows for some cut reduction on future.

Information technology in banking

Entry of new banks resulted in a paradigm shift in the ways of banking in India. The growing

competition, growing expectations led to increased awareness amongst banks on the role and

importance of technology in banking. The arrival of foreign and private banks with their superior

state-of-the-art technology-based services pushed Indian Banks also to follow suit by going in

for the latest technologies so as to meet the threat of competition and retain their customer base.


10/26

10 | P a g e


Indian banking industry, today is in the midst of an IT revolution. A combination of regulatory

and competitive reasons has led to increasing importance of total banking automation in the

Indian Banking Industry.The Software Packages for Banking Applications in India had their beginnings in the middle of

80s, when the Banks started computerizing the branches in a limited manner. The early 90s saw

the plummeting hardware prices and advent of cheap and inexpensive but high-powered PCs and

servers and banks went in for what was called Total Branch Automation (TBA) Packages. The

middle and late 90s witnessed the tornado of financial reforms, deregulation, globalization etc

coupled with rapid revolution in communication technologies and evolution of novel concept of

'convergence' of computer and communication technologies, like Internet, mobile / cell phones

etc.

In India, banks as well as other financial entities entered the world of information technology and

with Indian Financial Net (INFINET). INFINET, a wide area satellite based network (WAN)

using VSAT (Very Small Aperture Terminals) technology, was jointly set up by the Reserve

Bank and Institute for Development and Research in Banking Technology (IDRBT) in June

1999.

Internet has significantly influenced delivery channels of the banks. Internet has emerged as animportant medium for delivery of banking products & services. The Information Technology

Act, 2000 has given legal recognition to creation, trans-mission and retention of an electronic (or

magnetic) data to be treated as valid proof in a court of law, except in those areas, which

continue to be governed by the provisions of the Negotiable Instruments Act, 1881.


11/26

11 | P a g e


Implementation of Centralized Funds Management System

The centralized funds management system (CFMS) provides for a centralized viewing of balance

positions of the account holders across different accounts maintained at various locations of RBI.

While the first phase of the system covering the centralized funds enquiry system (CFES) has

been made available to the users, the second phase comprising the centralized funds transfer

system (CFTS) has been made available by the middle of 2003

Certification and Digital Signatures

The mid-term Review of October 2002 indicated the need for information security on the

network and the use of public key infrastructure (PKI) by banks. The Controller of CertifyingAuthorities, Government of India, have approved the Institute for Development and Research in

Banking Technology (IDRBT) as a Certification Authority (CA) for digital signatures.

Consequently, the process of setting up of registration authorities (RA) under the CA has

commenced at various banks. In addition to the negotiated dealing system (NDS), the electronic

clearing service (ECS) and electronic funds transfer (EFT) are also being enhanced in terms of

security by means of implementation of PKI and digital signatures using the facilities offered by

the CA.


12/26

12 | P a g e


CHAPTER-2

NATIONAL ELECTRONIC FUND TRANSFER (NEFT)

Overview

Payment systems are the key component of any financial system. They facilitate the movement

of money in the economy. The efficient functioning of the payment system makes a key

contribution to overall economic performance by allowing safe and timely completion of

financial transactions. Payment systems also provide the channel for effective transmission of

monetary policy. World over, the payment systems segment of the financial system have been

witnessing rapid changes due to the developments in information and communication

technologies. The changes are either spearheaded by the Central banks/Governments, or banking

sector. The aim of most of these developments have been to (i) reduce the usage of currency and

paper based payment instruments and (ii) facilitate faster movement of funds in the economy-

increase the efficiency with safety and security.

Recognizing the importance of payments systems to the development the economy, Reserve

Bank of India, has taken number of steps during the last few years to build a tough payments

system. The steps taken include building the necessary payments infrastructure and develop astrong institutional framework for the payment and settlement systems in the country.

NEFT

The NEFT was introduced in 2005. Since its inception the coverage of NEFT has Increased.

Currently it is available in 28000+ bank branches, through 67 banks at 3000+ centers. The target

is to cover all branches with RTGS facility, initially and then, further expand it to all

computerized bank branches in the country. The system also envisages extending it to non-

computerized rural branches as well through the project, NEFT extended.


13/26

13 | P a g e


As per this project the transaction will be routed to the nearest NEFT branch, and the last mile

would be covered manually. This system would cover all on-line branches of the Bank.

The objects of the NEFT system are:

(1)To establish an Electronic Funds Transfer System to facilitate an efficient, secure,economical, reliable and expeditious system of funds transfer and clearing in the banking

sector throughout India, and

(2)To relieve the stress on the existing paper based funds transfer and clearing system.

Salient Features of the NEFT Facility:

I. NEFT permits transfer of funds from one customer account of a specific Bank to theaccount of another customer of a different Bank. Initially, 4 settlements on week days (

9:30 a.m., 10.30 a.m., 12.00 noon, and 4.00 p.m.) and 3 settlements on Saturday (9.30

a.m. and 12.00 noon) on a deferred net settlement basis will take place.

II. Transactions below Rs. 1.00 lac can be effected through NEFT.III. Initially, selected branches are authorized to undertake NEFT transactions and it will be

extended at all online branches in a phased manner.

IV. Customer maintaining SB/ CD/ CC account with the Bank and willing to avail NEFTfacility (Inward/ Outward both remittances) has to execute an Agreement with the Bank.

V. Customer who does not have account with any Bank and wants to remit (Outward) fundsthrough NEFT system, may also opt this facility upto Rs. 0.50 lac in cash. However, all

stipulated guidelines in case of purchase of DD/PO in cash would be strictly followed.

VI. Nepalese Citizens working in India may remit the funds to Nepal (Only Outwardremittance) through this system.


14/26

14 | P a g e


VII. Customer may pay his Debit/Credit card outstanding through NEFT system in cash/transfer and also through his Debit/Credit card.

VIII. The Treasury Branch, Mumbai shall process the requests and transmit to RBI, NCC,Mumbai.

IX. No charges are levied by the NEFT clearing Centre.y Inward Remittance: Freey Outward Remittance: 50/- + Service Tax per transaction irrespective amount.

This is a message based funds transfer system. The system provides secure one-to-one funds

transfer facility for customers of banks. Unlike its precursors the EFT system which provided

settlement facility only at few centers, the NEFT facilitates national coverage, with centralized

clearing and settlement facility. Further, to provide sound legal basis to the system, the system is

provided with Public Key Infrastructure (PKI) based security system. There are six settlements

during a day in this system, thereby facilitating same day settlement of funds, for customers

using this facility.


15/26

15 | P a g e



16/26

16 | P a g e


How NEFT system operates

Step-1:

The remitter fills in the NEFT application form giving the particulars of the beneficiary (bank-branch, beneficiarys name, account type and account number) and authorizes the branch to

remit the specified amount to the beneficiary by raising a debit the remitters account. (This can

also be done by using net banking services offered by some of the banks.)

Step-2:

The remitting branch prepares a Structured Financial message (SFMS message) and sends it to

its Service Centre for NEFT.

Step-3:

The Service Centre forwards the same to the RBI NEFT centre (National Clearing Cell,

Mumbai) to be included for the next available settlement. Presently, NEFT is settled in six

batches at 9:30, 10:30, 12:00, 13:00, 1500 and 1600 hours on weekdays and 9:30, 10:30 and

12:00 hours on Saturdays.

Step-4:

The RBI at the NEFT centre sorts the transactions bankwise and prepares accounting entries of

net debit or credit for passing on to the banks participating in the system. Thereafter, bank-wise

remittance messages are transmitted to banks.

Step-5:

The receiving banks process the remittance messages received from RBI and afford credit to the

beneficiaries accounts.


17/26

17 | P a g e


NEFT main window


18/26

18 | P a g e


CHAPTER-3

COMPARISON OF NEFT SYSTEM WITH TRADITIONAL BANKING

SYSTEM

Before the introduction of NEFT and RTGS the transferring of fund was done through non use

of technology. The bank use the medium of demand draft(DD) and telegraphic transfer(TT).

However, DD is very common medium of transferring fund in current scenario also but TT is not

used very often.

Hawala System- Hawala (also known as hundi) is an informal value transfer system based on

the performance and honour of a huge network of money brokers, which are primarily located in

the Middle East, North Africa, the Horn of Africa, and South Asia

a hawala money transfer is a way to send money via a hawaladar or hawaladars, usually across

long distances, at a far lower cost than sending money by wire or bank transfer. Hawala banking

with hawala transactions and hawaladars have been used for thousands of years.

The transfer of money via a hawala banking system is extremely private and is unlikely to be

reported or discovered by anyone other than the hawaladar, the transferor and the tranferee. In

the hawala system, hawaladars are the brokers or facilitators of the transaction. This

transactional privacy has made hawala banking an evil villain for enemies of personal privacy

and financial privacy.

Demand Draft- A method used by individuals to make transfer payments from one bank account

to another. Demand drafts are marketed as a relatively secure method for cashing checks. The

major difference between demand drafts and normal checks is that demand drafts do not require

a signature in order to be cashed. Also known as "remotely created checks".


19/26

19 | P a g e


Telegraphic Transfer- T/T. A method of payment in which funds are transferred via telegraph

or cable. Telegraphic transfers are most common in business conducted in developing countries,

where other types of infrastructure, such as computerized payments, may not be available.

These methods are not very effective and speedy way of transferring fund as they are through

post/ telegraph. TT is not oftenly used but DD is still used for transferring fund. The Reserve

Bank of India introduced EFT for speedy transfer of fund from one place to another.

RBI EFT is a Scheme introduced by Reserve Bank of India (RBI) to help banks offering their

customers money transfer service from account to account of any bank branch to any other bank

branch in places where EFT services are offered.

An interface to a regional, national or international EFT network provides a financial institution

with shared EFT network services. Upon implementation, the financial institution can offer its

customers a wider range of ATM and EFT-POS terminal usage. Most financial institutions in the

India connect to a regional EFT network that also supports a gateway to an international EFT

network like MasterCard and Visa.

Fund availability schedule for beneficiary in EFT

If the remitting bank transmits the funds transfer message to RBI so as to hit the first settlement

at 12 noon, the receiving banks account is credited by RBI at the destination centre and

beneficiary gets the credit on Day 1 itself. If the same is included in subsequent settlements i.e.,

for 2 pm and 4 pm, the beneficiary gets credit on Day 2.

Steps in it operation

Step-1: The remitter fills in the EFT Application form giving the particulars of the beneficiary

(city, bank, branch, beneficiarys name, account type and account number) and authorises the

branch to remit a specified amount to the beneficiary by raising a debit to the remitters account.


20/26

20 | P a g e


Step-2: The remitting branch prepares a schedule and sends the duplicate of the EFT application

form to its Service branch for EFT data preparation. If the branch is equipped with a computer

system, data preparation can be done at the branch level in the specified format.

Step-3: The Service branch prepares the EFT data file by using a software package supplied by

RBI and transmits the same to the local RBI (National Clearing Cell) to be included for the

settlement of 12 noon, 2 pm and 4 pm.

Step-4: The RBI at the remitting centre consolidates the files received from all banks, sorts the

transactions city-wise and prepares vouchers for debiting the remitting banks on Day-1 itself.

City-wise files are transmitted to the RBI offices at the respective destination centers.

Step-5: RBI at the destination centre receives the files from the originating centres, consolidates

them and sorts them bank-wise. Thereafter, bank-wise remittance data files are transmitted to

banks on Day 1 itself. Bank-wise vouchers are prepared for crediting the receiving banks

accounts the same day or next day.

Step-6: On Day 1/2 morning the receiving banks at the destination centres process the remittance

files transmitted by RBI and forward credit reports to the destination branches for crediting the

beneficiaries accounts.

y How it is better than previous means of transferring fundThe primary modes of funds transfer at present are demand draft, mail transfer and

telegraphic transfer. The demand draft facility is paper based. The remitter, after purchasing

demand draft from a bank branch, dispatches the same by post/courier to the beneficiary. The

beneficiary, in turn, lodges the draft to his/her bank for collection and clearing. The time taken

for completing the process is about 10 days. In the case of telegraphic transfer, fund reaches the

beneficiary either on the same day or the next; but both the remitter and the beneficiary would

have to be account holders of the same bank. If they are customers of different banks, a good

deal of paper processing is required.


21/26

21 | P a g e


On the other hand, RBI EFT system is an inter-bank oriented system. RBI acts as an

intermediary between the remitting bank and the receiving bank and effects inter-bank funds

transfer. The customers of banks can request their respective branches to remit funds to the

designated customers irrespective of bank affiliation of the beneficiary.

y It is not necessary for all branches to have computer systems. Branches can send theremittance details to their service branch in paper format (the copies of the EFT

Application Forms submitted by the remitting customers accompanied by a Remittance

Scroll). The Service branch will make data entry and transmit the funds transfer

information electronically to local NCC. But, if a branch has computer facility, it can

transmit funds transfer information electronically to its service branch either on a floppy

or through a network. This would minimise the data entry work at the service branch.

y There is no value limit for individual transactions.NEFT and RTGS came into picture

There are faster and simpler ways to transfer money safely through use of RBI supported

electronic funds transfer systems such as NEFT and RTGS. The fund transfers happen

electronically for a relatively small fees and are completely safe. You can do the money transfer

easily as long as you have an internet banking account with your bank and information about the

beneficiary bank account. The money will be in your beneficiary's bank account almost

immediately (in case of RTGS) or in a few hours (if you use NEFT).

NEFT - The acronym NEFT stands for National Electronic Funds Transfer. Funds are

transferred to the credit account with the other participating Bank using RBI's NEFT service.

RBI acts as the service provider and transfers the credit to the other bank's account.

NEFT: Minimum: No Limit Maximum: Rs. 5 Lakh


22/26

22 | P a g e


RTGS The acronym RTGS stands for Real Time Gross Settlement. The RTGS system

facilitates transfer of funds from accounts in one bank to another on a real time and on gross

settlement basis. The RTGS system is the fastest possible interbank money transfer facility

available through secure banking channels in India.

RTGS: Minimum: Rs. 1 Lakh Maximum: Rs. 5 Lakh

NEFT / RTGS are the cheapest mode of transferring money through banks in India. Corporate

are saving huge money by utilizing the two but lack of awareness depriving the general public

from such cheapest and fastest mode of transfer of money.


23/26

23 | P a g e


CHAPTER-4

CONCLUSION

The facility of NEFT is used by large number of banks for facilitating transfer of fund from one

bank to another. This fund transfer has been proved an effective way of transferring money as it

has lesser fee and speedy transfer. In NEFT the settlement takes place 4 time a day and timing is

also that at which maximum transaction of fund takes place. Due to emergence in technology

now transfer of fund can be done in few minutes and the most significant thing in it is that it has

lessened the paper work of bank and transaction is done through computer.

RBI in its review on the payment system in India has told that lack of awareness in coming on

the way of effective usage of such revolutionary payment system in India. Large corporate

bodies have taken no of initiatives for the adoption of new payment modes but need is there the

general public should be aware of this facilities and hence should be able to utilize it effectively

and take the advantage in the form of cost saving, time saving and ease of banking. So say good

bye to costly and slow mode of remittance like demand draft, bankers cheque and switch over to

cheapest and immediate transfer mode NEFT/RTGS.


24/26

24 | P a g e


CHAPTER- 5

RECOMMENDATIONS

y Reserve Bank of India should take measure in order to make more branches to participatein NEFT.

y The branches which are situated in rural area should charge less fee per transaction inorder to increase use of NEFT by customers.

y The first settlement takes place within an hour of opening but there is a gap of four hoursbetween third and fourth settlement as there should be one more settlement can take

place.

y RBI should update its technology faster as it add to it effectiveness of system.y A quick response action team should be build in order to meet any technical failure.y There should be expertise training given to bank to handle system more effectively.


25/26

25 | P a g e


LIMITATION

This project work is a limited & focused analysis & doesnt claim to be a compendium; nevertheless,

utmost considerations are made before including any fact & figure. This is neither an intensively observed

report nor an extensive study because the data used in this proposal is Secondary in nature and is in

the form of various publications of foreign bodies, websites, books, magazines and newspapers,

reports prepared by research scholars, news documents and other sources of published

information.

This project would have been more of use if there could be interaction with any bank and their it

department.


26/26

26 | P a g e

BIBLIOGRAPHY

Books

W.S. Jawedekar, Management information system, (2nd edition) 2005,Tata McGraw-Hill, New

Delhi.

Websites

http://www.sefindia.org/?q=node/189

http://www.banknetindia.com/special/itb2.htm

http://www.venturewoods.org/wp-content/uploads/2007/11/paymentsystems.pdf

http://findarticles.com/p/articles/mi_6776/is_6_7/ai_n28514260/?tag=content;col1

http://www.articlesbase.com/banking-articles/inter-bank-money-transfer-using-neft-and-rtgs-in-india-

the-essentials-1518428.html

http://www.merinews.com/article/neftrtgs-revolution-in-cost-effective-domestic-money-

transfer/128575.shtml

Documents

eventually (mis)