Sfms-Neft 2011

ANALYSIS OF IMPACT OF
sfms/neft
ON
BANKS AND CUSTOMERS
INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

HYDERABAD
SFMS DEPARTMENT
JULY 2011
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Project by Sri. G. Harsha Vardhan – IDRBT, Hyderabad
CERTIFICATE
This is to certify that Mr. Gudivada Harsha Vardhan,

pursuing B. Tech course at Indian Institute of Technology,
Hyderabad with Computer Science and Engineering as major
subject has undertaken a project as an intern at the Institute for
Development and Research in Banking Technology (IDRBT),
Hyderabad from May 30 to July 19, 2011.
He was assigned the project “Analysis of Impact of

SFMS/NEFT on Banks and Customers” under the guidance of the
SFMS (Structured Financial Messaging System) Department of
IDRBT. During the course of the project he has undertaken a study
of the entire payment systems, issues involved in implementing
payment systems and a detailed survey of users, customers,
bankers and others.
In this project assigned to Mr. Harsha Vardhan he has done

excellent work.
We wish him all the best in all his endeavours.
G. Raghuraj
Deputy General Manager
IDRBT, Hyderabad
Project Guide
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ACKNOWLEDGEMENT
I would like to express my sincere gratitude to the Institute for Development and
Research in Banking Technology (IDRBT) and particularly Sri. G. Raghuraj, Deputy
General Manager, IDRBT who was my guide in this project. This opportunity of learning
all the nuances of a messaging platform and a major payment system application of the
country was a boon to me as one rarely gets such exposure. I would not hesitate to
add that this short stint in IDRBT has added a different facet to my life as this is a
unique organisation being a combination of academics, research, technology,
communication services, crucial applications, etc., and at the same time performing
roles as an arm of regulation, spread of technology, facilitator for implementing
technology in banking and non-banking systems, playing a role of an NGO (without
being one) and many more varied activities.
I am extremely grateful to Sri Raghuraj for his advice, innovative suggestions

and supervision. I thank him for introducing me to an excellent banking application and
giving me the opportunity to approach diverse sections of people starting from bankers
to general public. I am also very thankful to the staff of SFMS department at IDRBT for
helping me to get familiar with the application. They gave me a chance to study the
application and its impact from different perspectives. I would like to thank all the staff
and officials of IDRBT for their complete cooperation during my survey. I am very much
thankful for all the bankers who responded to my survey despite their very tight time
schedules. I am thankful to my college, IIT Hyderabad for giving me this golden
opportunity to work in a high-end research institute like IDRBT. I am thankful for IDRBT
for providing such an amazing platform for students to work in real application oriented
research. Finally, I thank one and all who made this project successful either directly or
indirectly.
G.Harsha Vardhan
Project Trainee
Department of SFMS
IDRBT,Hyderabad
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ABSTRACT
1. Introduction:
A well-defined payments and settlement system is, a crucial component of the financial
infrastructure of any country. Payment instruments and mechanisms have a very long
history in India. Rnapatra or Rnalekhya, Adesha, Hundis were some of the payment
instruments in the past. Cheques, Demand Drafts, Banker's cheques, Payment Orders,
Travellers’ cheques are paper- based and require to be tendered at specific banks for
payment either in person or through another bank in clearing or through collection. The
Reserve Bank has been, proactively encouraging the introduction of electronic payment
products that are superior to paper-based systems in terms of traceability, efficiency,
speed and safety. These include Real Time Gross Settlement (RTGS), Electronic
Clearing Service (ECS) - credit/debit), National Electronic Funds Transfer – NEFT, Card
transactions, Mobile banking etc.
2. Regulatory and Developmental Role of the Reserve Bank in Payment and

Settlement Systems:
In terms of the Payment and Settlement Systems Act (the PSS Act), 2007, the Reserve
Bank was vested with statutory powers to regulate and supervise the payment systems
in the country. The Payment and Settlement Systems Act, 2007 has cast the
responsibility of regulation and supervision of payment systems on the Bank. The PSS
Act enjoins upon any entity the need to obtain authorisation from the Bank (unless
specifically exempted in terms of the PSS Act) for operating any payment system as
defined therein.
3. Overview of SFMS/NEFT:
SFMS is a messaging middleware for domestic banking and finance industry. The
message formats published by IDRBT under the heading “INFINET (INdian FInancial
NETwork) are implemented under this web enabled software solution. Entities in the
flow of SFMS messages are Hub, Gateway, Online servers, Offline servers and
terminals. NEFT application is built on SFMS messaging platform. An online branch
server is required to install and use this application. NEFT is divided into two modules:
The RBI NEFT server is called NEFT RBI service center. At the bank branch where NEFT
is operates it is called NEFT Branch service center.
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4. Statistical analysis of different payment systems and NEFT ’s impact on
them:
There is a clear and considerable fall in the percentage of amount transferred through
cheque clearing in the past three years as compared to electronic based payments.
RTGS transactions are by their very nature very large in value and clearly amounts keep
increasing right from the beginning. The increasing percentage of customer remittance
through electronic based payment systems vis-a-vis total transactions might be
attributed to the increased awareness and confidence among people in online transfer
of huge amounts. Among all the electronic payment systems NEFT is the leading in
increase in percentage of transactions – 773% in the last three years. Lesser charges,
speed, convenience for customers and bankers, flexibility of amounts remitted, high
security compared to its counterparts, settlement in the central bank of the country
(RBI) lend impetus to its exponential rise.
5. Analysis of impact of SFMS/NEFT on banks and customers – based on the

survey:
A survey was conducted among different bankers with a questionnaire focussed on

awareness of the product. Based on the responses to the survey, an analysis was
made on the impact of SFMS/NEFT on banks. Around 10% of respondents showed
average impact whereas around 28% responses indicated excellent impact. When
inquired about the steps taken by banks to create awareness among their staff and
customers, they replied that as they are organising workshops, releasing
advertisements, distributing brochures, etc., these do create awareness. Bankers
expressed some inconvenience in operating NEFT transactions.
Similar to the survey conducted on banks, a survey was conducted on customers.

Around 20% are in the excellent zone. People are happy with faster settlement
compared to other payment modes.
6. Inputs from the survey:
One of the best ways to create awareness about NEFT among common people is direct
the banks to provide NEFT forms in regional languages at branches. Making NEFT real
time will be a path breaking step if taken. The biggest and common request from
bankers and common people is to make NEFT real time or at least shorter batch length.
There is a big misconception that there is a maximum amount which can be transacted
through NEFT system among both bankers and customers. It was suggested that a
separate NEFT channel could be set up at every branch to address customer
grievances.
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TABLE OF CONTENTS
1. Introduction
2. Regulatory and Developmental Role of the Reserve Bank in Payment
and Settlement Systems
3. Overview of SFMS/NEFT
4. Statistical analysis of different payment systems – impact of NEFT
4.1 Cheque clearing data (MICR and Non MICR)
4.2 Electronic Clearing Service (ECS – Credit and Debit)
4.3 Real Time Gross Settlement (RTGS)
4.4 National Electronic Fund Transfer (NEFT)
4.5 Card payment transactions
4.6 Overview – Statistics and trends of different types of
transactions and impact of NEFT
5. Analysis of Impact of SFMS/NEFT on banks and customers – based

on the survey
6. Inputs from the survey

7. List of some of the people and institutions participated in the analysis
and References
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1. Introduction
1.1 Payment and Settlement systems form the backbone of any economy. The
spectacular growth in financial transactions has necessitated certain radical changes in
the payments and settlement systems around the globe. The technological revolution in
the field of electronics and telecommunication has helped to bring about sophisticated
developments in the payments and settlement systems in many countries. A well-
defined payments and settlement system is, therefore, a crucial component of the
financial infrastructure of any country.
1.2 Payment Systems provide the arteries or highways for conducting trade,
commerce and other forms of economic activities in any country. An efficient payment
system functions as a lubricant speeding up the liquidity flow in the economy and
creating a momentum for economic growth. A smooth, well-functioning payment
system not only ensures efficient utilization of scarce resources but also eliminates
systemic risks.
Evolution of Payment Systems in India:
1.3 Payment instruments and mechanisms have a very long history in India. The
earliest payment instruments known to have been used in India were coins. In ancient
India, loan deed forms called rnapatra or rnalekhya were in use. In the Mauryan period,
an instrument called adesha was in use, which was an order on a banker desiring him
to pay the money of the note to a third person. In the Mughal period, we have the
testimony of foreign travellers regarding the use of bills of exchange in the then great
commercial centers. Another instrument in use during the Muslim period was the Pay
order.
1.4 The most important class of credit Instruments that evolved in India were
termed Hundis. Cheques were introduced by the Bank of Hindoostan, the first joint
stock bank established in 1770. Post Bills were introduced by the British in 1827. In
1881, the Negotiable Instruments Act (NI Act) was enacted, formalizing the usage and
characteristics of instruments like the cheque, the bill of exchange and promissory note.
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The NI Act provided a legal framework for non-cash paper payment instruments in
India.
1.5 With the steady growth in volumes of trade and commerce and the growing
confidence of the public in the usage of cheque etc., transactions through the use of
these payment instruments grew at a rapid pace. There was danger of loss in transit of
the instruments. Besides, such methods could only serve for limited volumes of
instruments. With the development of the banking system and higher turnover in the
volume of cheques, the need for an organized cheque clearing process emerged
amongst the banks. Clearing associations were formed by the banks in the Presidency
towns and the final settlement between member banks was effected by means of
cheques drawn on the Presidency Banks.
1.6 After the setting up of Reserve Bank of India under the RBI Act 1935, the
Clearing Houses in the Presidency towns were taken over by Reserve Bank of India.
Payment Instruments in India:
1.7 A cheque is a “bill of exchange” drawn on a specified banker and not expressed
to be payable otherwise than on demand. The maker of a cheque is called the 'drawer',
and the person directed to pay is the 'drawee'. The person named in the instrument, to
whom or to whose order the money is, by the instrument directed, to be paid, is called
the 'payee'. The Demand Draft is a pre-paid Negotiable Instrument, wherein the drawee
bank undertakes to make payment in full when the instrument is presented by the
payee for payment. The demand draft is made payable on a specified branch of a bank
at a specified center.
1.8 Banker's cheque is another payment instrument which is used by banks to settle
payment obligations on behalf of their customers. This instrument is guaranteed by the
bank for its full value and is similar to a demand draft. Payment Orders are issued by
banks for payments made on behalf of the bank. These instruments are signed by a
banker and carry the guarantee of the bank on the availability of the funds.
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1.9 Traveller’s cheques are a secure and convenient alternative to carrying cash.
These are prepaid instruments available in fixed denominations. Interest warrants are
special types of cheques which are 'payable at par' in various branches of a bank across
the country.
1.10 The payment instruments described above are all paper based and require to be
tendered at specific banks for payment either in person or through another bank in
clearing or through collection. The basic requirement of cheques and demand drafts is
that these instruments have to be physically presented, often leading to delays in
payment. The need for physical presentment of the cheque at the branch, on which it is
drawn, requires the movement of cheques from one place to another. As a result, the
recipient of payment has to wait until the collecting banker is fully satisfied that the
cheque has been paid. This time lag will continue irrespective of the level of technology
and improvements in process, so long as the physical presentment of the cheque is
necessary as per the banking law.
1.11 Computerization of clearing operations was the first major step towards
modernization of the payment systems. The next important milestone was fully
automating the clearing operations. The volumes in cheque clearing continued to reflect
an upward trend, creating considerable pressure on the existing work flow processes. It
was decided that a system needed to be put in place that would (i) decrease the
volumes of paper instruments in MICR clearing and (ii) improve customer service by
ensuring prompt and secure interest/dividend payments to the beneficiaries.
Developments in Payment and Settlement Systems:
1.12 To ensure further efficiency as also to reduce physical movement of cheques, the
Cheque Truncation System (CTS) that involves use of images for processing of cheques
in clearing was introduced in the National Capital Region (NCR) of Delhi in 2008. Here
the scanned image of the cheque travels to the clearing system instead of the cheque
thus saving time and resources of moving the cheque instrument out of the bank
branch.
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1.13 The Reserve Bank has been, over a period of time, proactively encouraging the
introduction of electronic payment products that are superior to paper-based systems in
terms of traceability, efficiency, speed and safety. These include large value payment
options like the Real Time Gross Settlement (RTGS) as also retail payment options that
facilitate multiple credit/debit transactions such as (Electronic Clearing Service (ECS) -
credit/debit) or person to person electronic payments (National Electronic Funds
Transfer - NEFT), Card transactions ( Credit and Debit/ATM), Mobile banking etc.
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2. Regulatory and Developmental Role of the Reserve
Bank in Payment and Settlement Systems
2.1 In terms of the Payment and Settlement Systems Act (the PSS Act), 2007, the
Reserve Bank has been vested with statutory powers to regulate and supervise the
payment systems in the country. Under the PSS Act, the Bank has constituted an apex
body, the Board for Regulation and Supervision of Payment and Settlement Systems
(BPSS). The Department of Payment and Settlement Systems (DPSS) of the Reserve
Bank assists the BPSS in administering various provisions of the PSS Act. The Payment
and Settlement Systems Act, 2007 has cast the responsibility of regulation and
supervision of payment systems on the Bank. The PSS Act enjoins upon any entity the
need to obtain authorisation from the Bank (unless specifically exempted in terms of
the PSS Act) for operating any payment system as defined therein.
2.2 Following the enactment of the PSS Act, the Reserve Bank with directions from
the BPSS has suitably enhanced its Mission statement, “to ensure that all the payment
and settlement systems operating in the country are safe, secure, sound, efficient,
accessible and authorised”. The Payment and Settlement Systems Act, 2007 (the Act)
(effective from August 12, 2008) prohibits any entity from commencing or continuing to
operate a payment system without the approval of the Reserve Bank. The Reserve Bank
may accord approval to the payment system, based on the need for the proposed
activity, the services proposed to be undertaken / offered and the efficiency it will bring
to functioning of the payment systems in the country. The Bank, while authorising
payment systems, would advise the criteria and prescribe the terms and conditions
under which the said systems shall operate. The Payment and Settlement Systems Act,
2007 provides legal basis for finality of settlement i.e. it lays down the point of time
when the settlement will be deemed final. The Payment and Settlement Systems Act,
2007 along with the Board for Regulation and Supervision of Payment and Settlement
Systems Regulations, 2008 and the Payment and Settlement Systems Regulations, 2008
provide the legal framework and the base for smooth operations of the payment
systems in the country. Our payment systems are now compliant with Principle 1 of the
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Core Principles for Systemically Important Payment Systems i.e., “The system should
have a well-founded legal basis under all relevant jurisdictions”.
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3. OVERVIEW OF SFMS/NEFT
3.1 SFMS is a messaging middleware for domestic banking and finance industry. The
message formats published by RBI under the heading “INFINET (INdian FInancial
NETwork) are implemented under this web enabled software solution. Financial
messages once authorized for sending are delivered to destination, without any further
intervention. Banks can utilize SFMS for secure and guaranteed electronic message
delivery. Central Banking Applications of RBI, such as RTGS (Real Time Gross
Settlement), CFMS (Centralized Funds Management System), PDO-NDS (Public Debt
Offices-Negotiated Dealing System), DvP(Delivery versus Payment), Currency Chest
Reporting) use SFMS for message delivery. SFMS replicates SWIFT (Society for
Worldwide Interbank Financial Telecommunication).
3.2 More than 95 % of banking operations are computerized. Further with the
explosion in telephone density in country, most of the bank transactions can use
electronic means of communication. SFMS has been designed taking into account these
changes. SFMS can be integrated with existing and future bank applications through
Application Program Interface (APIs). Banks can continue to use their existing bank
applications without any change in work environment, even after integration with SFMS.
3.3 Based on the recommendations of working group appointed by INFINET users

group, message formats were classified into three categories. These messages were
developed and implemented through SFMS on INFINET.SFMS inherited all the features
of SWIFT messages and added many more features required in domestic environment.
3.4 Key Features of SFMS :
• Modularized Web-Enabled Software enabling financial messaging within and

between participating banks.
• Support flexible definition of messages similar to SWIFT like user to user and system
messages.
• Directory services for maintenance of IFSC (Indian Financial System Code) directory,
network configuration.
• Secured messaging and routing based on store and forward principle.
• Routing based on IFSC code.
• Messages clubbed and exchanged as batch files.
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• Smart card based user access.
• Messages secured via standard encryption and authentication services conforming to
ISO/SWIFT standards.
• Complete auditing, logging, time-stamping and warehousing of messages.
• Multi-tiered solution covering INFINET Hub, Bank Gateways and Bank sites.
• 3-tier client – server architecture.
3.5 Security features of SFMS:
Public Key Infrastructure (PKI) solution is ported on SFMS with features like
Authentication through Digital Signature constructed from public key/private key pair,
Digital certificate etc. stored on a smart card.
Confidentiality à Message and Channel Encryption

Message Authentication
Non Repudiation à Digital Signatures
Integrity
3.6 Design Features of SFMS:
• Messaging operations
• Registration of branches and gateways
• Query facilities
• User security profiles
• Download facilities
• Audit, Log & reports
SFMS has a well-defined format for all messages which follows a block structure
containing 5 blocks.
3.7 Audit Services:
• Activity log of messages/Files exchanged

• Pre transaction and post transaction images for all user-initiated transactions
3.8 Archival and Retrieval:
• Rule based housekeeping

• Rules are defined on housekeeping and retention period.
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3.9 Store and Forward and Time stamping:
Instructions/messages/files are stored locally before being forwarded. Copies are

time stamped with proper receipt, digitally signed and transmitted with date and time.
3.10 Limitations:
Functionality of SFMS is message creation and transportation to different nodes

across network. Processing of messages based on the content is not to be a part of
SFMS as it is purely messaging software.
3.11 Entities in SFMS:
1) HUB:
The SFMS hub of IDRBT
• switches inter-bank messages & files

• maintains the directory of IFS codes of all existing SFMS nodes at any point of
time
• uses IFS codes of new SFMS nodes(of gateways, online servers, offline servers
and terminals assigned to IFS codes)
•
2) Gateway:
Each bank has to have one gateway at a location convenient from networking
and operation point of view. Gateway should have connectivity to INFINET and
an IP address given as per the INFINET IP addressing scheme of IDRBT. Banks
will decide on type, configuration and sizing of hardware based on the volume of
traffic (of messages and file transfer) and no. of branches operating SFMS. The
gateway switches all intra–bank messages and files and transmits them to
respective branches operating SFMS servers, without intervention of HUB. The
inter-bank messages and files are transmitted by the Gateway to the HUB, for
eventual delivery of these to destination bank branches & vice versa.
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3) Online servers, Offline servers and Terminals:
At branches, online servers or Offline servers or a combination of

Online/offline and terminals can be provided. Online and Offline servers at
branches are independent, directly interacting with the bank’s gateway. End
point nodes/systems are linked to these servers.
a) Online servers:
Online servers provide online messaging/file transfer facility and is ideal for very
large branches, having high message volumes. Terminals could be 3 types:
1) In branch LAN
2) Remote access to some important customers of branch.
3) Other remote branches with separate IFS codes.
Type configuration and sizing of hardware selected for online server depends
on volume of traffic and no. of terminals, accessing the server.
b) Offline server:
The messages could be created offline (without the need for online connectivity)
and uploaded to/ downloaded from gateway using a dial up/ leased line
connectivity. Offline server can provide connectivity for not more than ten
terminals either in the LAN or remote access to the customers of branch in same
center, through dial up.
c) Terminals:
Any PC with Windows 2000/2008 and IE 5.5 or above would serve as a terminal.
3.12 Messaging:
A message can be created in SFMS in any of the following ways.

• Message created by user connecting to branch server using a browser based
client
• Messages created by bank’s legacy applications and forwarded to SFMS branch
server.
• Files upload facility available at SFMS. Messages exchanged through files with
SFMS branch server.
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In addition to above mentioned message sources, external applications like
PDO-NDS can also create messages in their respective systems and forward the
same to SFMS network for further routing.
In addition to message transfer, file transfer utility in SFMS allows transfer of all
types of files (whether ASCII or non ASCII) in a secure mode. Files can be
transferred from one Online or Offline server to another.
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NEFT
(National Electronic Funds Transfer)
NEFT application is built on SFMS. An online branch server is required to install
and use this application. NEFT is divided into two modules:
1) For banks 2) For RBI. At RBI NEFT server is installed and is called NEFT
RBI service center. The bank branch where NEFT is installed is called NEFT Branch
service center.
The difference between RTGS & NEFT is that in RTGS, real time settlement of
gross amount takes place whereas in NEFT there is , batch-wise net settlement.
Further, RTGS has now a minimum transaction amount of Rs.2 lakhs whereas NEFT has
no such minimum or maximum amount limits.
3.13 NEFT application at branch:
Following are main functions of NEFT branch application.

1) Create and send outward debit (N06) messages to NEFT service center.
2) Receive Inward credit (N02), rejected (N03 and N09) messages from NEFT
service center.
3) Return a credit (N02) message using N07 to NEFT service center.
4) Receive End-Of –Day/End-Of-Batch (N04) messages from NEFT service center.
3.14 NEFT application at service center:
Following are the messages created at NEFT service center application:

1) IFN298N06: Message for consolidating and sending outward debits from
branches to NEFT RBI center.
2) IFN298N07: Message for returns from branches to NEFT RBI center
3) IFN298N09: Message for sending rejections at service center to bank branches.
4) IFN298N04: Message for sending End-Of-Day/End-Of-Batch details to bank
branches.
5) IFN298N02: Message for sending inward credits to bank branches
6) IFN298N03: Message for sending rejections from NEFT RBI center to bank
branches.
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3.15 NEFT service center receives the outward debit (N06), return (N07) messages
from all the branches, consolidates them into a bunch of 10 transactions each and
sends the same to NEFT RBI center. At the NEFT RBI center, these debits from all
participating banks are received and settled batch wise. The settlement statement is
then sent to RTGS system for confirmation. Once the confirmation is received from
RTGS system, the NEFT RBI center sends the credits to each bank’s NEFT service
center. The service center then segregates the credits and sends them to the
destination branches. Nil transaction (N08) messages are sent by NEFT RBI center to
the service centers of those banks with no transactions. These N08 messages are not
forwarded to branches.
3.16 Once these credits are sent, the End-Of-Batch (N04) messages are sent to
respective service centers. At the end of last batch, the End-Of-Day (N04) messages are
sent to service centers which in turn aggregate the N04 messages and send them to
respective branches.
3.17 Latest developments and Highlights:
1) Banks are directed to upgrade to latest hardware and software requirements

for SFMS/NEFT:
OLD NEW
OS: Windows 2000 server Windows 2008
MQ server: 5.3 MQ server: 7
Oracle 9i Oracle 11g
On 32 bit architecture On 64 bit architecture.
2) VSAT (Very Small Aperture Terminal) technology was used during the launch of
INFINET in 2001. From 2010 MPLS (Multi-Protocol Label Switching) technology is used.
3) For cryptographic security digital signatures are used. These are in the process
of up gradation to SHA1 and SHA2 (Secure Hybrid Algorithm).
4) As many banks have adopted CBS (Core Banking System), future versions of
SFMS/NEFT may be upgraded for greater efficiency.
5) In 2010, a new message, N10 was introduced. This credit

acknowledgement message is sent to sender branch by the receiver branch
after successfully crediting the amount remitted to the beneficiary account.
On receiving credit acknowledgement message (N10) at sender bank, sender
bank sends an Email/SMS to sender party (customer) about successful
transfer of funds. This is made compulsory by RBI. The message status is
changed from “Delivered” to “Credited to the customer”.
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4. STATISTICAL ANALYSISOF DIFFERENT PAYMENT
SYSTEMS – NEFT IMPACT ON THEM
4.1 Cheque clearing transactions(MICR and Non MICR)

4.2 Electronic Clearing Service (ECS – Credit and Debit)
4.3 Real Time Gross Settlement (RTGS)
4.4 National Electronic Fund Transfer (NEFT)
4.5 Card payment transactions
4.6 Overview – Statistics and trends of different types of transactions and impact
of NEFT
4.1 CHEQUE CLEARING TRANSACTIONS
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4.1.1 A cheque is a Negotiable Instrument, which can be further negotiated by
means of endorsement and is payable on demand. A cheque payable to bearer is
negotiable by the delivery thereof, and when it is payable to order is negotiable by
the holder by endorsement and delivery thereof. A cheque has to be presented for
payment by the payee or holder to the acceptor, maker or drawer. A cheque
payment is a debit transaction as the transaction regarding the payment of a
cheque is initiated by the payee or beneficiary. The physical movement required for
the cheque clearing process provoked banks to move towards other electronic
payment systems.
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Table 4.1: Cheque clearing data
(Number and Amount in crores)
Total Non MICR
Total Total MICR centres
Month centres
Number Amount Number Amount Number Amount
Apr-08 11.891 12,07,897.20 9.901 9,72,117.80 1.99 2,35,779.40
May-08 11.566 10,97,478.60 9.658 9,14,063.80 1.908 1,83,414.80
Jun -08 11.254 10,73,408.20 9.338 9,11,800.10 1.916 1,61,608.10
Jul-08 12.068 11,02,837.50 10.079 9,39,457.50 1.989 1,63,380.00
Aug-08 11.313 993405.20 9.481 8,54,943.90 1.833 1,38,461.30
Sep -08 11.078 10,38,127.10 9.257 9,02,794.30 1.821 1,35,332.80
Oct-08 12.315 10,62,220.60 10.327 9,21,340.10 1.987 1,40,880.60
Nov-08 10.903 8,74,462.30 9.043 7,31,670.40 1.861 1,42,791.90
Dec-08 11.734 9,36,948.10 9.64 8,04,450.90 2.094 1,32,497.10
Jan-09 11.386 9,38,909.50 9.475 7,64,997.50 1.911 1,73,912.00
Feb-09 10.879 8,59,981.60 9.014 7,15,893.10 1.866 1,44,088.50
Mar-09 12.471 12,16,444.90 10.372 9,12,213.50 2.099 3,04,231.40
Apr-09 11.089 9,37,769.00 9.225 7,78,434.10 1.865 1,59,335.00
May-09 11.023 8,51,448.40 9.109 6,92,706.90 1.914 1,58,741.50
Jun -09 11.224 8,58,216.70 9.351 7,24,654.80 1.873 1,33,561.90
Jul-09 12.009 9,00,803.80 10.027 7,60,467.70 1.982 1,40,336.10
Aug-09 11.151 8,11,856.30 9.277 6,86,446.90 1.875 1,25,409.30
Sep -09 10.894 8,21,805.60 9.12 6,85,011.40 1.774 1,36,794.20
Oct-09 12.505 9,16,009.30 10.445 7,63,886.00 2.06 1,52,123.30
Nov-09 10.953 7,45,163.70 9.065 6,05,263.90 1.888 1,39,899.80
Dec-09 11.772 8,33,489.50 9.765 6,78,375.90 2.008 1,55,113.50
Jan-10 11.247 8,00,047.00 9.376 6,57,045.00 1.871 1,43,002.00
Feb-10 10.763 7,77,185.40 9.033 6,27,412.50 1.731 1,49,772.90
Mar-10 13.405 11,56,734.20 11.188 8,72,399.10 2.217 2,84,335.10
Apr-10 11.753 8,59,982.70 9.709 7,04,089.10 2.044 1,55,893.60
May-10 11.105 8,21,772.70 9.198 6,72,732.20 1.907 1,49,040.50
Jun -10 11.044 8,35,896.50 9.147 6,92,640.50 1.897 1,43,256.00
Jul-10 11.875 8,10,268.70 9.966 6,73,800.90 1.908 1,36,467.70
Aug-10 11.644 8,11,607.00 9.731 6,63,801.50 1.913 1,47,805.50
Sep -10 10.846 7,75,861.90 9.069 6,25,642.40 1.777 1,50,219.50
Oct-10 12.444 9,07,747.90 10.499 7,63,899.20 1.945 1,43,848.70
Nov-10 11.041 8,09,569.20 9.218 6,53,956.90 1.822 1,55,612.30
Dec-10 11.944 8,74,704.80 10.016 7,28,143.40 1.928 1,46,561.40
Jan-11 11.051 8,11,413.40 9.217 6,47,635.40 1.834 1,63,778.00
Feb-11 10.809 7,97,845.50 9.011 6,42,994.20 1.798 1,54,851.30
Mar-11 13.075 10,17,444.80 10.724 8,31,882.50 2.351 1,85,562.20
Apr-11 10.975 8,66,680.10 9.153 7,06,363.30 1.822 1,60,316.80
23
4.1.2 The number of banks and branches of existing banks increased to a very high
number. Further banks penetrated to remote areas also. In such a scenario, as the most
trusted payment system, cheque volumes should increase in number to a large extent.
However in view of all its drawbacks, as banks favoured all the possible electronic modes,
the percentage of cheque transaction volume in payment systems almost remained flat
through the past three years.
4.1.3 The influence of electronic payment methods can further be seen in the
amount patterns in chart 4.2. There is a clear and considerable fall in the amount
transferred through cheque clearing in the past three years. However in a country
like India with huge popul ation and illiteracy, it is not possible to bring immediate
changes in the payment systems. To wish away cheques is simply not possible as
cheques are still the prominent mode of payments in the country and that is the
reason why the Reserve Bank decided to focus on improving the efficiency of the
cheque clearing cycle. Cheque Truncation System (CTS) is the alternative.
24
25
Total cheque clearing transaction amount =100%
Tota cheque clearing transactions volume =100%
100%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Apr-08
Apr-08
Jul-08
Jul-08
Oct-08
Oct-08
Jan-09
Jan-09
Apr-09
Apr-09
Jul-09
Jul-09
Oct-09 Oct-09
Month
Month
Jan-10 Jan-10
Apr-10 Apr-10
Jul-10 Jul-10
Oct-10 Oct-10
Jan-11 Jan-11
Apr-11 Apr-11
MICR
MICR
Chart 4.4: Cheque clearing transactions
Chart 4.3 : Cheque clearing transactions
Non MICR
Non MICR

4.2 ECS (ELECTRONIC CLEARING SERVICE)
CREDIT and DEBIT
Table 4.2: ECS( Volume and Amount in crores)
Total ECS
Credit Debit
Month transactions
Volume Amount Volume Amount Volume Amount
Apr-08 0.6096 8590.47 1.2711 5009.43 1.8807 13599.9
May-08 0.4725 5314.57 1.327 5129.74 1.7995 10444.31
Jun-08 0.6417 7553.91 1.3226 5196.29 1.9643 12750.2
Jul-08 0.9235 10371.04 1.3335 5447.8 2.257 15818.84
Aug-08 1.2109 9493.34 1.3394 5546.76 2.5503 15040.1
Sep-08 0.9634 9122 1.3157 5627.37 2.2791 14749.37
Oct-08 1.214 9733.6 1.3492 5906.58 2.5632 15640.18
Nov-08 0.5772 6758.28 1.3713 5755.72 1.9485 12514
Dec-08 0.4831 7202.24 1.3593 5901.41 1.8424 13103.65
Jan-09 0.5293 9153.85 1.3701 5845.04 1.8994 14998.89
Feb-09 0.7548 8431.26 1.2905 5688.24 2.0453 14119.5
Mar-09 0.4593 5762.04 1.3558 5921.52 1.8151 11683.56
Apr-09 0.382 11134.18 1.2217 5807.17 1.6037 16941.35
May-09 0.5119 6665.42 1.2127 5792.75 1.7246 12458.17
Jun-09 0.6072 8668.65 1.2746 5750.13 1.8818 14418.78
Jul-09 1.1545 12797.93 1.2622 5671.51 2.4167 18469.44
Aug-09 1.1895 15037.64 1.1764 5714.31 2.3659 20751.95
Sep-09 1.142 11420.36 1.1613 6069.78 2.3033 17490.14
Oct-09 1.3434 10983.93 1.3098 5051.28 2.6532 16035.21
Nov-09 0.7589 7311.27 1.2219 5815.54 1.9808 13126.81
Dec-09 0.5827 7385.7 1.2652 6035.36 1.8479 13421.06
Jan-10 0.6514 7733.98 1.2568 5895.96 1.9082 13629.94
Feb-10 0.7808 9051.96 1.119 5623.81 1.8998 14675.77
Mar-10 0.7091 9421.6 1.4466 6296.26 2.1557 15717.86
Apr-10 0.7866 12819.03 1.2739 5873.66 2.0605 18692.69
May-10 0.6572 10061.09 1.2622 5740.5 1.9194 15801.59
Jun-10 0.892 12912.23 1.2824 6190.89 2.1744 19103.12
Jul-10 1.224 23792.09 1.2959 5902.97 2.5199 29695.06
Aug-10 1.3393 14941.75 1.2639 5790.79 2.6032 20732.54
Sep-10 1.0792 12789.98 1.2666 5960.05 2.3458 18750.03
Oct-10 1.6705 25351.57 1.3277 8935.07 2.9982 34286.64
Nov-10 0.9127 17488.4 1.318 6089.97 2.2307 23578.37
Dec-10 0.7748 21706.55 1.3464 6221.64 2.1212 27928.19
Jan-11 0.6732 9146.45 1.3308 6105.56 2.004 15252.01
Feb-11 1.0371 11166.54 1.3202 4971.88 2.3573 16138.42
Mar-11 0.6835 9510.1 1.386 5862.81 2.0695 15372.91
Apr-11 0.773 15826.88 1.3242 6290.12 2.0972 22117
May-11 0.6694 13654.52 1.3542 6514.78 2.0236 20169.3
26
Chart 4.5: ECS Transactions
40000
35000
Amount(in crores)
30000 ECS credit
25000 amount
20000
15000 ECS debit
10000 amount
5000
0
Total ECS
Aug-08
Aug-09
Aug-10
Apr-08
Apr-09
Apr-10
Apr-11
Dec-08
Dec-09
Dec-10
transaction
amount
Month
4.2.1 ECS is an electronic mode of payment / receipt for transactions that are repetitive
and periodic in nature. ECS is used by institutions for making bulk payment of amounts
towards distribution of dividend, interest, salary, pension, etc., or for bulk collection of
amounts towards telephone / electricity / water dues, cess / tax collections, loan
instalment repayments, periodic investments in mutual funds, etc. Primarily, there are
two variants of ECS - ECS Credit and ECS Debit. ECS Credit is used for affording credit to
a large number of beneficiaries having accounts with bank branches at various locations
within the jurisdiction of an ECS Centre by raising a single debit to an account of a bank
(that maintains the account of the user institution).
4.2.2 ECS Debit is used for

Chart 4.6: ECS Transactions raising debits to a large
3.5
number of accounts
3
maintained with bank
Volume(in crores)
2.5 ECS credit
2
Volume branches at various
1.5 ECS debit locations within the
1
volume jurisdiction of a ECS Centre
0.5 Total ECS for single credit to an
0 transaction account of a bank (that
volume maintains the account of the
Apr-08
Apr-09
Apr-10
Apr-11
Aug-08
Aug-09
Aug-10
Dec-08
Dec-09
Dec-10
user institution).
Month
27
4.2.3 ECS Credit enables payment of amounts towards distribution of dividend,
interest, salary, pension, etc., of the user institution. ECS Debit is useful for payment of
telephone / electricity / water bills, cess / tax collections, loan instalment repayments,
periodic investments in mutual funds, etc., that are periodic or repetitive in nature and
payable to the user institution. The different uses of ECS Credit and ECS Debit explain
the flattened ECS Debit throughout the year with ECS Credit rising in the beginning of
every financial quarter and falling back again.
Chart 4.8: ECS credit and debit

100%
Total ECS amount =100%
90%
80%
70% ECS debit
60% amount
50%
40%
30% ECS credit
20% amount
10%
0%
Apr-08
Apr-09
Apr-10
Apr-11
Aug-08
Aug-09
Aug-10
Dec-08
Dec-09
Dec-10
Month
28
4.3 RTGS
RTGS (REAL TIMEGross
(Real Time GROSS SETTLEMENT)
Settlement)
Table 4.3 RTGS transactions ( volume and amount in crores)

Month
Volume Amount
Customer remittance Interbank remittance Total Customer remittance Interbank remittance Total
Apr-08 0.0519 0.0157 0.0676 1595777.62 853187.78 2448965.40
May-08 0.0595 0.0167 0.0762 1580007.83 885628.25 2465636.08
Jun-08 0.0621 0.0165 0.0786 1646155.13 951811.99 2597967.12
Jul-08 0.0692 0.0176 0.0868 1587652.09 1100562.35 2688214.44
Aug-08 0.0686 0.0164 0.0850 1436487.67 970634.47 2407122.14
Sep-08 0.0783 0.0166 0.0949 1856151.15 1107216.33 2963367.48
Oct-08 0.0917 0.0172 0.1089 1600262.02 1138951.40 2739213.42
Nov-08 0.0964 0.0173 0.1137 1333676.48 1005503.61 2339180.09
Dec-08 0.1176 0.0194 0.1370 1733974.18 1071438.17 2805412.35
Jan-09 0.1244 0.0193 0.1437 1617258.72 1007993.11 2625251.83
Feb-09 0.1315 0.0184 0.1499 1588921.37 962785.66 2551707.03
Mar-09 0.1722 0.0220 0.1942 2427783.53 1220060.37 3647843.90
Apr-09 0.1620 0.0194 0.1814 1882570.44 938518.59 2821089.03
May-09 0.1772 0.0207 0.1979 2005120.69 926922.08 2932042.77
Jun-09 0.2010 0.0220 0.2230 2414892.93 932255.88 3347148.81
Jul-09 0.2124 0.0223 0.2347 2361696.14 817679.51 3179375.65
Aug-09 0.2113 0.0210 0.2323 2451621.30 744363.88 3195985.18
Sep-09 0.2218 0.0216 0.2434 2639052.07 839448.23 3478500.30
Oct-09 0.2679 0.0246 0.2925 2611319.99 762282.04 3373602.03
Nov-09 0.2703 0.0236 0.2939 2122556.52 672712.97 2795269.49
Dec-09 0.3027 0.0248 0.3275 2698071.73 776396.36 3474468.09
Jan-10 0.3006 0.0249 0.3255 2391646.42 762906.61 3154553.03
Feb-10 0.3110 0.0246 0.3356 2209498.00 675175.29 2884673.29
Mar-10 0.4058 0.0307 0.4365 3728731.22 1087920.10 4816651.32
Apr-10 0.3466 0.0268 0.3734 2802542.10 839052.16 3641594.26
May-10 0.3654 0.0276 0.3930 2480707.11 794852.15 3275559.26
Jun-10 0.3797 0.0288 0.4085 2872284.41 861089.86 3733374.27
Jul-10 0.3864 0.0290 0.4154 2664682.44 972517.76 3637200.20
Aug-10 0.3904 0.0290 0.4194 2556679.28 902025.37 3458704.65
Sep-10 0.3826 0.0277 0.4103 3070013.19 1043680.22 4113693.41
Oct-10 0.4411 0.0303 0.4714 3102982.43 1157512.58 4260495.01
Nov-10 0.3724 0.0288 0.4012 3006349.76 1134152.92 4140502.68
Dec-10 0.3597 0.0302 0.3899 3450012.25 1152562.35 4602574.60
Jan-11 0.3533 0.0299 0.3832 2860861.47 962993.09 3823854.56
Feb-11 0.3516 0.0290 0.3806 2832225.44 975863.18 3808088.62
Mar-11 0.4434 0.0361 0.4795 4486952.95 1504639.81 5991592.76
Apr-11 0.3045 0.0251 0.3296 2873433.74 943837.51 3817271.25
May-11 0.3942 0.0334 0.4275 3070944.95 1119140.37 4190085.317
29
4.3.1 '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).'Real Time' means the
processing of instructions at the
time they are received rather
than at some later time.
'Gross Settlement' means the settlement of funds transfer instructions occurs individually (on
an instruction by instruction basis). The RTGS system is primarily meant for large value
transactions. The minimum amount to be remitted through RTGS is Rs.2 lakh. There is no
upper ceiling for RTGS transactions. Under normal circumstances the beneficiary branches
are expected to receive the funds in real time as soon as funds are transferred by the
remitting bank. The beneficiary bank has to credit the beneficiary's account within two hours
of receiving the funds transfer message.
Chart 4.10: RTGS transactions 4.3.2 RTGS transactions are very clearly
increasing in amount from the
0.6
beginning. However its volume is
Tota transactions volume(in crores)
0.5
flattening from the mid-2010.This may
0.4
be due to transactions which are greater
0.3
than 2 lakh but need not be sent
0.2
immediately. Previously, they might have
0.1
been sent through RTGS, but due to
0 increased NEFT awareness, all such are
Apr-08
Jul-08
Apr-09
Jul-09
Apr-10
Jul-10
Apr-11
Oct-08
Oct-09
Oct-10
Jan-09
Jan-10
Jan-11
shifted to NEFT.
Month Total Volume
30
Chart 4.11: RTGS transactions
100%
Total transaction volume = 100%

80%
60%
Interbank
40%
remittance
20%
Customer
0% remittance
Apr-08
Apr-09
Apr-10
Apr-11
Aug-08
Aug-09
Aug-10
Dec-08
Dec-09
Dec-10
Month
4.3.3 The increased percentage of customer remittance in total transactions might be

attributed to the increased awareness and confidence among people in online transfer of
huge amounts. In view of all the inherent risks involved and as an important step towards
encouraging transition to alternate efficient electronic payment systems viz. RTGS, NEFT,
the Reserve Bank discontinued the separate High Value Clearing (HVC) (i.e., same day
clearing of local cheques of Rs. 1 lakh and above), that was operational at 30 large centres
across the country, in a non-disruptive manner. This also can be one of the reasons for the
substantial increase in RTGS transactions.
Chart 4.12: RTGS transactions

100%
Tota transaction amount = 100%
90%
80%
70%
60%
50%
40%
Interbank remittance
30%
20% Customer remittance
10%
0%
Oct-10
Sep-08
Feb-09
May-10
Apr-08
Jul-09
Dec-09
Mar-11
Month
31
4.4 NEFT (NATIONAL ELECTRONIC FUNDS TRANSFER)
Table 4.4: NEFT/EFT transactions

(Volume and Amount in crores)
Month Volume Amount
Apr-08 0.1702 18286.34
May-08 0.1871 20067.09
Jun-08 0.1916 13194.69
Jul-08 0.2293 22999.52
Aug-08 0.2261 15213.86
Sep-08 0.2525 17221.08
Oct-08 0.3077 25722.44
Nov-08 0.2719 22097.04
Dec-08 0.3195 21449.44
Jan-09 0.3227 27635.01
Feb-09 0.3321 20367.58
Mar-09 0.4054 27702.3
Apr-09 0.3942 31728.54
May-09 0.3894 23474.15
Jun-09 0.4504 30513.06
Jul-09 0.5097 38261.03
Aug-09 0.5222 29400.62
Sep-09 0.4949 29582.34
Oct-09 0.5948 43654.55
Nov-09 0.5582 28151.66
Dec-09 0.6307 35766.61
Jan-10 0.6195 38446.69
Feb-10 0.6422 36630.78
Mar-10 0.8277 43897.45
Apr-10 0.7484 57512.21
May-10 0.7742 55867.16
Jun-10 0.842 52447.21
Jul-10 0.9463 67051.68
Aug-10 0.9804 61641.84
Sep-10 0.9836 60986.94
Oct-10 1.1627 77703.52
Nov-10 1.1751 77361.09
Dec-10 1.3462 93720.04
Jan-11 1.2961 93888.32
Feb-11 1.3434 90588.35
Mar-11 1.6359 150,380.68
Apr-11 1.4866 130,294.50
May-11 1.5766 114,532.32
32
4.4.1 National Electronic Funds Transfer (NEFT) is a nation-wide system that facilitates
individuals, firms and corporates to electronically transfer funds from any bank branch
to any individual, firm or corporate having an account with any other bank branch in
the country. There is no limit – either minimum or maximum – on the amount of funds
that could be transferred using NEFT. There is no restriction of centers or of any
geographical area within the country. The NEFT system takes advantage of the
centralized accounting system in banks. This is the most useful and convenient for the
common people. Among all the electronic payment NEFT is the leading in increase in
percentage of transactions – 773% in the last three years. Lesser charges, speed,
convenience for customers and bankers, high security compared to its counterparts
lead to its exponential rise as shown in chart 3.13 and 3.14.
4.4.2 The NEFT system has

Chart 4.13: NEFT transactions been strengthened by:
2
Volume (in crores)
1.5 (i)Enhancing Business

Continuity Plans/Disaster
1
Recovery arrangements,
0.5
Volume
ii)Mandating creation of
0 Customer Facilitation Centre
(CFC) for prompt resolution
Apr-08
Apr-09
Apr-10
Apr-11
Aug-08
Aug-09
Aug-10
Dec-08
Dec-09
Dec-10
of customer complaints,
Month
(iii)Increasing the number of
settlements from six to
eleven and making the
system available from 0900
hours to 1900 hours on
weekdays and 0900 hours to
Chart 4.14: NEFT transactions 1300 hours on Saturdays
160000 and
140000 (iv)Mandating creation of
Amount(in crores)
120000
credit conformation (N10)
100000
80000 message by receiver branch.
60000 (v)Mandating ‘Positive
40000 Amount Confirmation’ to be sent to
20000
0 the originator confirming
successful credit to
Apr-08
Apr-09
Apr-10
Apr-11
Aug-08
Aug-09
Aug-10
Dec-08
Dec-09
Dec-10
beneficiary’s account.
Month
33
4.5 CARD PAYMENTS – CREDIT and DEBIT
Table 4.5 Card Payments(Number,volume and amount in crores)

Credit Debit Total
Month
No.of outstanding cards Volume Amount No.of outstanding cards Volume Amount No.of outstanding cards Volume Amount
Apr-08 2.8312 2.1545 5611.38 10.4991 0.8444 1225.51 13.3303 2.9989 6836.89
May-08 2.6734 2.1496 5581.88 10.8253 0.9333 1373.54 13.4987 3.0829 6955.42
Jun-08 2.7016 2.0621 5261.63 11.0152 0.9291 1287.22 13.7168 2.9912 6548.85
Jul-08 2.6868 2.2447 5578.37 11.3039 1.0049 1394.4 13.9907 3.2496 6972.77
Aug-08 2.6733 2.2628 5801.48 11.4063 1.1241 1737.47 14.0796 3.3869 7538.95
Sep-08 2.682 2.1916 5635.6 11.9744 1.0396 1513.4 14.6564 3.2312 7149
Oct-08 2.6675 2.3647 6442.34 12.196 1.1903 1960.77 14.8635 3.555 8403.11
Nov-08 2.5323 2.0574 5355.01 12.5511 1.0512 1558.36 15.0834 3.1086 6913.37
Dec-08 2.6153 2.2597 5311.21 12.7533 1.1856 1671.64 15.3686 3.4453 6982.85
Jan-09 2.5871 2.1787 5171.06 13.1418 1.1869 1718.27 15.7289 3.3656 6889.33
Feb-09 2.5512 1.9598 4659.48 13.4236 1.1038 1535.25 15.9748 3.0636 6194.73
Mar-09 2.4699 2.0704 4946.34 13.7431 1.1721 1571.18 16.213 3.2425 6517.52
Apr-09 2.4367 1.8544 4932.37 14.0551 1.2047 1778.2 16.4918 3.0591 6710.57
May-09 2.4054 1.8204 4815.94 14.3033 1.2708 1887.71 16.7087 3.0912 6703.65
Jun-09 2.2844 1.9102 4863.35 14.6392 1.2593 1814.71 16.9236 3.1695 6678.06
Jul-09 2.2256 2.0211 4957.33 15.1259 1.4227 2097.84 17.3515 3.4438 7055.17
Aug-09 2.1949 1.9668 4858.34 15.5099 1.4794 2333.46 17.7048 3.4462 7191.8
Sep-09 2.1308 1.9125 4905.47 15.9017 1.3686 2113.96 18.0325 3.2811 7019.43
Oct-09 2.1118 2.0465 5660.93 16.2809 1.4422 2572.28 18.3927 3.4887 8233.21
Nov-09 2.0841 1.9324 5256.18 16.583 1.4132 2256.87 18.6671 3.3456 7513.05
Dec-09 2.0645 2.0484 5506.55 17.0568 1.5439 2433.8 19.1213 3.5923 7940.35
Jan-10 2.0439 2.0263 5425.51 17.4127 1.5825 2491 19.4566 3.6088 7916.51
Feb-10 2.0163 1.8115 4923.11 17.798 1.4678 2211.16 19.8143 3.2793 7134.27
Mar-10 1.8331 2.0645 5712.09 18.1972 1.5618 2427.12 20.0303 3.6263 8139.21
Apr-10 1.9288 1.9827 5473.58 18.4791 1.5997 2508.32 20.4079 3.5824 7981.9
May-10 1.9024 2.095 5935.54 18.8249 1.7903 2958.7 20.7273 3.8853 8894.24
Jun-10 1.8944 2.0197 5538.75 19.1912 1.6823 2597.49 21.0856 3.702 8136.24
Jul-10 1.8927 2.1898 5817.46 19.5699 1.8837 2903.02 21.4626 4.0735 8720.48
Aug-10 1.8854 2.2608 6259.42 20.0092 2.0552 3321.09 21.8946 4.316 9580.51
Sep-10 1.8426 2.1087 5847.83 20.3833 1.9037 2985.23 22.2259 4.0124 8833.06
Oct-10 1.8217 2.2907 6760.37 20.8136 2.1492 3714.37 22.6353 4.4399 10474.74
Nov-10 1.8188 2.3044 6921.56 21.1877 2.088 3722.47 23.0065 4.3924 10644.03
Dec-10 1.8102 2.3491 6846.28 21.6039 2.1391 3605.89 23.4141 4.4882 10452.17
Jan-11 1.8136 2.4083 6934.65 21.8209 2.2232 3712.67 23.6345 4.6315 10647.32
Feb-11 1.8133 2.1647 6212.92 22.2369 2.0546 3304.43 24.0502 4.2193 9517.35
Mar-11 1.8039 2.3405 6967.33 22.7844 2.1373 3356.98 24.5883 4.4778 10324.31
Apr-11 1.7778 2.3228 7055.4 23.0257 2.2462 3705.54 24.8035 4.569 10760.94
34
4.5.1 Automated Teller Machines (ATMs) are primarily
used for performing some of the banking functions such as
withdrawal of cash or deposit of cash/cheque etc., by using
an ATM card. Each customer is provided with an ATM card
with a unique Personal Identification Number (PIN).
Whenever a customer performs a transaction, the person
has to key in the PIN which is validated by the ATM, before
the machine permits any transaction. The PIN has to be
kept secret by the customer, to prevent any misuse or
fraudulent transactions in the event of loss of the card.
Chart 4.16: Card payments 4.5.2 Though the number of credit cards remained almost
12000 flat, the debit/ATM cards increased linearly in number. This
Tota transaction amount(in crores)
Amount
10000
(Credit) may be due to economic slowdown in the past years and
8000 increased number of ATMs. The most significant
6000 Amount development in the ATM market was the much awaited RBI
4000 (Debit) guidelines in April 2009 that made ATM transactions free of
2000 charge across all banks. Further issue of scholarships and
Amount
0
(Credit+ crop relief amounts through ATM cards increased
Oct-08
Oct-09
Oct-10
Apr-08
Jul-08
Apr-09
Jul-09
Apr-10
Jul-10
Apr-11
Jan-09
Jan-10
Jan-11
Debit) awareness and usage.
Month
35
4.5.3 In case during the cash withdrawal process, cash
is not disbursed by the account gets debited for the
amount, as per the RBI instructions, banks may re-credit
such wrongly debited amounts within a maximum period
of 12 working days. Effective from July 17, 2009, banks
shall have to pay customers Rs 100/- per day for delays
beyond 12 working days. Some of the banks provide
cash deposit option through ATM and some banks allow
NEFT transactions through ATM. These are good and
encouraging examples for different electronic payment
modes to go hand in hand. Such integration of different
payment modes increases flexibility and mutual
improvisation of each payment modes. As shown in the
chart 4.17 and 4.18, percentage of debit card
transactions increased over the last three years
compared to credit cards.
36
4.6 OVERVIEW – STATISTICS AND TRENDS OF DIFFERENT
TYPES OF TRANSACTIONS AND IMPACT OF NEFT
Table 4.6: Different types of transactions (Volume and Amount in crores)

NEFT RTGS ECS transactions
Month transactions transactions Credit Debit Total
Volume Amount Volume Amount Volume Amount Volume Amount Volume Amount
Apr-08 0.1702 18286.34 0.0676 2448965.4 0.6096 8590.47 1.2711 5009.43 1.8807 13599.9
May 08 0.1871 20067.09 0.0762 2465636.08 0.4725 5314.57 1.327 5129.74 1.7995 10444.31
Jun -08 0.1916 13194.69 0.0786 2597967.12 0.6417 7553.91 1.3226 5196.29 1.9643 12750.2
Jul-08 0.2293 22999.52 0.0868 2688214.44 0.9235 10371.04 1.3335 5447.8 2.257 15818.84
Aug-08 0.2261 15213.86 0.085 2407122.14 1.2109 9493.34 1.3394 5546.76 2.5503 15040.1
Sep -08 0.2525 17221.08 0.0949 2963367.48 0.9634 9122 1.3157 5627.37 2.2791 14749.37
Oct-08 0.3077 25722.44 0.1089 2739213.42 1.214 9733.6 1.3492 5906.58 2.5632 15640.18
Nov-08 0.2719 22097. 04 0.1137 2339180.09 0.5772 6758.28 1.3713 5755.72 1.9485 12514
Dec-08 0.3195 21449.44 0.137 2805412.35 0.4831 7202.24 1.3593 5901.41 1.8424 13103.65
Jan -09 0.3227 27635.01 0.1437 2625251.83 0.5293 9153.85 1.3701 5845.04 1.8994 14998.89
Feb -09 0.3321 20367.58 0.1499 2551707.03 0.7548 8431.26 1.2905 5688.24 2.0453 14119.5
Mar-09 0.4054 27702.3 0.1942 3647843.9 0.4593 5762.04 1.3558 5921.52 1.8151 11683.56
Apr-09 0.3942 31728.54 0.1814 2821089.03 0.382 11134.18 1.2217 5807.17 1.6037 16941.35
May 09 0.3894 23474.15 0.1979 2932042.77 0.5119 6665.42 1.2127 5792.75 1.7246 12458.17
Jun -09 0.4504 30513.06 0.223 3347148.81 0.6072 8668.65 1.2746 5750.13 1.8818 14418.78
Jul-09 0.5097 38261.03 0.2347 3179375.65 1.1545 12797.93 1.2622 5671.51 2.4167 18469.44
Aug-09 0.5222 29400.62 0.2323 3195985.18 1.1895 15037.64 1.1764 5714.31 2.3659 20751.95
Sep -09 0.4949 29582.34 0.2434 3478500.3 1.142 11420.36 1.1613 6069.78 2.3033 17490.14
Oct-09 0.5948 43654.55 0.2925 3373602.03 1.3434 10983.93 1.3098 5051.28 2.6532 16035.21
Nov-09 0.5582 28151.66 0.2939 2795269.49 0.7589 7311.27 1.2219 5815.54 1.9808 13126.81
Dec-09 0.6307 35766.61 0.3275 3474468.09 0.5827 7385.7 1.2652 6035.36 1.8479 13421.06
Jan -10 0.6195 38446.69 0.3255 3154553.03 0.6514 7733.98 1.2568 5895.96 1.9082 13629.94
Feb -10 0.6422 36630.78 0.3356 2884673.29 0.7808 9051.96 1.119 5623.81 1.8998 14675.77
Mar-10 0.8277 43897.45 0.4365 4816651.32 0.7091 9421.6 1.4466 6296.26 2.1557 15717.86
Apr-10 0.7484 57512.21 0.3734 3641594.26 0.7866 12819.03 1.2739 5873.66 2.0605 18692.69
May 10 0.7742 55867.16 0.393 3275559.26 0.6572 10061.09 1.2622 5740.5 1.9194 15801.59
Jun -10 0.842 52447.21 0.4085 3733374.27 0.892 12912.23 1.2824 6190.89 2.1744 19103.12
Jul-10 0.9463 67051.68 0.4154 3637200.2 1.224 23792.09 1.2959 5902.97 2.5199 29695.06
Aug-10 0.9804 61641.84 0.4194 3458704.65 1.3393 14941.75 1.2639 5790.79 2.6032 20732.54
Sep -10 0.9836 60986.94 0.4103 4113693.41 1.0792 12789.98 1.2666 5960.05 2.3458 18750.03
Oct-10 1.1627 77703.52 0.4714 4260495.01 1.6705 25351.57 1.3277 8935.07 2.9982 34286.64
Nov-10 1.1751 77361.09 0.4012 4140502.68 0.9127 17488.4 1.318 6089.97 2.2307 23578.37
Dec-10 1.3462 93720.04 0.3899 4602574.6 0.7748 21706.55 1.3464 6221.64 2.1212 27928.19
Jan -11 1.2961 93888.32 0.3832 3823854.56 0.6732 9146.45 1.3308 6105.56 2.004 15252.01
Feb -11 1.3434 90588.35 0.3806 3808088.62 1.0371 11166.54 1.3202 4971.88 2.3573 16138.42
Mar-11 1.6359 150380.68 0.4795 5991592.76 0.6835 9510.1 1.386 5862.81 2.0695 15372.91
Apr-11 1.4866 130294.5 0.3296 3817271.25 0.773 15826.88 1.3242 6290.12 2.0972 22117
37
Table 4.7: Different types of transactions
Card transactions Total electronic Cheque clearing
Month Credit Debit Total transactions transactions
Volume Amount Volume Amount Volume Amount Volume Amount Volume Amount
Apr-08 2.1545 5611.38 0.8444 1225.51 2.9989 6836.89 5.1174 2487688.53 11.891 1207897.2
May-08 2.1496 5581.88 0.9333 1373.54 3.0829 6955.42 5.1457 2503102.9 11.566 1097478.6
Jun -08 2.0621 5261.63 0.9291 1287.22 2.9912 6548.85 5.2257 2630460.86 11.254 1073408.2
Jul-08 2.2447 5578.37 1.0049 1394.4 3.2496 6972.77 5.8227 2734005.57 12.068 1102837.5
Aug-08 2.2628 5801.48 1.1241 1737.47 3.3869 7538.95 6.2483 2444915.05 11.313 993405.2
Sep -08 2.1916 5635.6 1.0396 1513.4 3.2312 7149 5.8577 3002486.93 11.078 1038127.1
Oct-08 2.3647 6442.34 1.1903 1960.77 3.555 8403.11 6.5348 2788979.15 12.315 1062220.6
Nov-08 2.0574 5355.01 1.0512 1558.36 3.1086 6913.37 5.4427 2380704.5 10.903 874462.3
Dec-08 2.2597 5311.21 1.1856 1671.64 3.4453 6982.85 5.7442 2846948.29 11.734 936948.1
Jan -09 2.1787 5171.06 1.1869 1718.27 3.3656 6889.33 5.7314 2674775.06 11.386 938909.5
Feb -09 1.9598 4659.48 1.1038 1535.25 3.0636 6194.73 5.5909 2592388.84 10.879 859981.6
Mar-09 2.0704 4946.34 1.1721 1571.18 3.2425 6517.52 5.6572 3693747.28 12.471 1216444.9
Apr-09 1.8544 4932.37 1.2047 1778.2 3.0591 6710.57 5.2384 2876469.49 11.089 937769
May-09 1.8204 4815.94 1.2708 1887.71 3.0912 6703.65 5.4031 2974678.74 11.023 851448.4
Jun -09 1.9102 4863.35 1.2593 1814.71 3.1695 6678.06 5.7247 3398758.71 11.224 858216.7
Jul-09 2.0211 4957.33 1.4227 2097.84 3.4438 7055.17 6.6049 3243161.29 12.009 900803.8
Aug-09 1.9668 4858.34 1.4794 2333.46 3.4462 7191.8 6.5666 3253329.55 11.151 811856.3
Sep -09 1.9125 4905.47 1.3686 2113.96 3.2811 7019.43 6.3227 3532592.21 10.894 821805.6
Oct-09 2.0465 5660.93 1.4422 2572.28 3.4887 8233.21 7.0292 3441525 12.505 916009.3
Nov-09 1.9324 5256.18 1.4132 2256.87 3.3456 7513.05 6.1785 2844061.01 10.953 745163.7
Dec-09 2.0484 5506.55 1.5439 2433.8 3.5923 7940.35 6.3984 3531596.11 11.772 833489.5
Jan -10 2.0263 5425.51 1.5825 2491 3.6088 7916.51 6.462 3214546.17 11.247 800047
Feb -10 1.8115 4923.11 1.4678 2211.16 3.2793 7134.27 6.1569 2943114.11 10.763 777185.4
Mar-10 2.0645 5712.09 1.5618 2427.12 3.6263 8139.21 7.0462 4884405.84 13.405 1156734.2
Apr-10 1.9827 5473.58 1.5997 2508.32 3.5824 7981.9 6.7647 3725781.06 11.753 859982.7
May-10 2.095 5935.54 1.7903 2958.7 3.8853 8894.24 6.9719 3356122.25 11.105 821772.7
Jun -10 2.0197 5538.75 1.6823 2597.49 3.702 8136.24 7.1269 3813060.84 11.044 835896.5
Jul-10 2.1898 5817.46 1.8837 2903.02 4.0735 8720.48 7.9551 3742667.42 11.875 810268.7
Aug-10 2.2608 6259.42 2.0552 3321.09 4.316 9580.51 8.319 3550659.54 11.644 811607
Sep -10 2.1087 5847.83 1.9037 2985.23 4.0124 8833.06 7.7521 4202263.44 10.846 775861.9
Oct-10 2.2907 6760.37 2.1492 3714.37 4.4399 10474.74 9.0722 4382959.91 12.444 907747.9
Nov-10 2.3044 6921.56 2.088 3722.47 4.3924 10644.03 8.1994 4252086.17 11.041 809569.2
Dec-10 2.3491 6846.28 2.1391 3605.89 4.4882 10452.17 8.3455 4734675 11.944 874704.8
Jan -11 2.4083 6934.65 2.2232 3712.67 4.6315 10647.32 8.3148 3943642.21 11.051 811413.4
Feb -11 2.1647 6212.92 2.0546 3304.43 4.2193 9517.35 8.3006 3924332.74 10.809 797845.5
Mar-11 2.3405 6967.33 2.1373 3356.98 4.4778 10324.31 8.6627 6167670.66 13.075 1017444.8
Apr-11 2.3228 7055.4 2.2462 3705.54 4.569 10760.94 8.4824 3980443.69 10.975 866680.1
38
Table 4.8: Change over the period of 2008-11
Type of Apr-08 Apr-11 Percentage change
transaction
Volume Amount Volume Amount Volume Amount
Paper transactions 11.891 1207897.2 10.975 866680.1 -7.703305021 -28.24885263
ECS(Credit) 0.6096 8590.47 0.773 15826.88 26.80446194 84.2376494
ECS(Debit) 1.2711 5009.43 1.3242 6290.12 4.177484069 25.56558331
Card transactions 2.9989 6836.89 4.569 10760.94 52.35586382 57.39524842
RTGS 0.0676 2448965.4 0.3296 3817271.25 387.5739645 55.87281266

NEFT 0.1702 18286.34 1.4866 130294.5 773.4430082 612.5236652
39
4.6.1 Chart 4.19 clearly shows the trends of different payment systems for the past
three years. The share of paper based cheque clearing transactions reduced both in
volume and amount. This is mainly due to more efficient electronic payment systems
replacing it. Particularly, NEFT being a retail payment system showed a huge increase of
transactions both in volume and amount. As seen in the table 4 .8, among the electronic
transactions NEFT is leading in improvement both in volume and amount. It has the
highest change in percentage both in volume and amount. All this improvement is
because more and more banks and branches are adopting NEFT. Further RTGS cut off
was raised from 1 to 2 lakhs. So, all the transactions between 1 and 2 lakh also shifted
to NEFT. Above all the growing popularity of NEFT has contributed for its wide spread.
4.6.2 In spite of the clear shift towards electronic transactions, cheque clearing
transactions still occupies the top position in volume, as shown in chart 4 .19. This is also
due to the spread of banking activity to areas which were hitherto unserviced by banks.
It shows the big potential for growth of electronic payment systems in future. It shows
that awareness among customers and bankers about electronic payments has to
increase manifold for reducing use of paper for payment transactions.
Chart 4.20: Diffrent types of transactions NEFT transaction amount
7000000 RTGS transaction amount

6000000
ECS(Credit) amount
Amount (in crores)
5000000
4000000 ECS(Debit) amount
3000000 Total ECS (Credit+Debit)

2000000 amount
1000000 Card transaction
(Credit+Debit)amount
0 Total e - transaction amount
Jul-08
Jul-09
Jul-10
Apr-08
Apr-09
Apr-10
Apr-11
Oct-08
Oct-09
Oct-10
Jan-09
Jan-10
Jan-11
Cheque clearing amount

Month
40
Chart 4.21: % share in e -
transactions
NEFT
2008-09
transactio RTGS
n volume transactio
5% n volume
Card Total ECS 2%
transactio (Credit+De
n bit)
(Credit+De volume
bit)volume 36%
57%
NEFT
Chart 4.22: % share in e - transactio
transactions 2009-10 n volume
9%
RTGS
4.6.3 In comparison to remaining transactio
electronic transactions, NEFT share has Card
n volume
4%
increased from 5% to a high of 14%. . transactio
All the remaining payment types except n Total ECS
(Credit+De (Credit+De
RTGS have a lesser share of growth. bit)
bit)volume
54% volume
33%
4.6.4 In view of the huge popularity

and volume of card transactions,
enabling NEFT transactions through
ATMs can effectively reduce the
volume of paper transactions.
41
Chart 4.26: % share in total
transactions 2010-11
Total e -
transacti
Cheque on
clearing
volume
volume
41%
59%
4.6.5 The above charts show the trend of share of paper and electronic transactions in
volume. NEFT leads in growth in the share of electronic transactions as it showed a
increase of 773% in volume. However, as stated earlier, remaining 59% share of paper
transactions implies a lot more has to be done towards adopting electronic transactions.
Particularly, advantages of NEFT transactions should be taken to remote areas where
customers may be unaware of it. Also, convincing academic and private sector
institutions to do away with drafts and cheques may help in reaching a desired level of
transactions through electronic means
42
Chart 4.29 : % share in total
transactions 2010-11
Cheque
clearing
amount Total e -
transacti
17%
on
amount
83%
4.6.6 The above charts show the trend of share of paper and electronic transactions
in amount. In comparison to the volume share improvement i.e., 8% of electronic
transactions, it is a higher rise in amount share i.e., 10%. This shows customers who
used NEFT, developed confidence in it and began to send higher amounts through
NEFT. Further higher volume share and lesser amount share of paper transactions
show that common people who make transactions in smaller amounts are using paper
instruments.Sobanks could create awareness among their customers who have not yet
adopted electronic modes of payment. This may appear to be a move towards loss of
revenue which could have come by way of charges collected, but in the long run,
customer satisfaction will benefit the banks. Also, avoiding so many paper instruments
will be a noble contribution to the environment from banking sector, particularly
payment and settlement sector. This would also contribute towards what could be
called “Green Banking”.
43
5. ANALYSIS OF IMPACT OF SFMS/NEFT ON BANKS
AND CUTOMERS
BASED ON THE SURVEY

Impact on the banks:
5.1 A survey was conducted among different bankers. It included front end staff
operating NEFT at branches, branch managers, Technical department staff, payment
and settlement department staff of various banks, bankers from RBI, etc. This
survey included onsite visits of banks and online survey. Further, people who
attended SFMS/NEFT training session at IDRBT also participated in the survey.
Bankers were asked to answer a survey which consisted of around 30 questions.
These questions inquired about their experiences with NEFT transactions and its
impact on banks. Also in the onsite visits to banks, a lot of experiences and
recommendations were collected orally.
{Note: The survey was predominantly within the city of Hyderabad hence the results
could be skewed in favour of urban opinion}
5.2 Based on the responses of survey, an analysis was made on the impact of
SFMS/NEFT on banks. Each response is given a score on a scale of 10 (10
maximum). For example, if a response implies an excellent positive impact on
bankers, it would be given a score of 10. For each respondent, an average of scores
of all the questions is taken as their score. Some of the common questions put were:
1. What are reasons for adopting SFMS/NEFT?

2. Did SFMS/NEFT influence your business strategy?
3. Did you feel inconvenience in setting up/operation/training staff for SFMS/NEFT?
4. What are the programs for crating awareness about SFMS/NEFT among your staff
and customers?
5. How is the work environment before and after SFMS/NEFT?
6. In which months NEFT transactions increase in number?
Based on the scores on 10 point scale, impact was measured in the following levels.
Less than or equal to 6.5 à Bad
Greater than 6.5 and less than or equal to 7.5 à Average
Greater than 7.5 and less than or equal to 8.5 à Good
Greater than 8.5 and less than or equal to 9 à Very Good
44
Greater than 9 à Excellent
5.3 Chart 5.1 shows the trend of impact of SFMS/NEFT on banks. Around 10%
are with average impact. Here impact implies positive impact. Around 28% exhibited
excellent impact. However, the most encouraging is that highest share is taken by
very good impact with 35%. In addition to this overall impact analysis, some of the
questions have very interesting response patterns. They are listed below for better
understanding of the impact of SFMS/NEFT.
1.As reaso ns for adopting SFMS/NEFT, 71% replied as “ more e – transactions

followed by 63% as “ Customer profitability”. This shows NEFT as the trend setter in
payment and settlement system.
2. About 72% felt SFMS/NEFT influenced their business strategy.
3. Ten percent felt inconvenience in setting up SFMS/NEFT, 8.3% in each operation

and training staff.
4. Only 7.5% required special recruitment after SFMS/NEFT.
5. About higher volume of NEFT transactions, some said it is March, some replied it
depends on seasonal business, remaining replied as uniform throughout the year.
6. 62.5% have awareness programs for their staff and customers.
7. On a 5 point scale, following features were graded in SFMS/NEFT.
Security à 60% gave 5, 32.5% gave 4
Speed à 52.5%gave 4, 30% gave 5

45
Comfort and Convenience à 50% gave 5, 32.5% gave 4
Legal liability o f sender and receiver à 50% gave 4, 20% gave 5
8. Around 75% give NEFT forms, 55% give thorough internet banking, 25% through
mobile banking, 15% through ATM the option for making NEFT.
9.82.5% felt overall working hours saved due to NEFT.
10. Of those who are aware of green banking, 81.25% accepted NEFT as a step
towards green banking.
5.4 Some of the comments and experiences in the words of bankers:
“Dependence on draft dramatically reduced and so did reduce the time required for
the transfer of funds to the recipient”
“Cost effective reduction in complaints”
“Large and big firms approached us for opening accounts after knowing about NEFT“
“Customers waiting for service disappeared”
“Working hours reduced due to reconciliation problems reduced”
5.5 When inquired about the steps taken by banks to create awareness among
their staff and people, they replied as they are organising workshops, IT department
training, circulars, job cards, senior staff training etc., for staff. Further for
customers, advertisements, notice boards at branches, websites, pamphlets,
brochures are used to create awareness. Some of the banks are also giving
concession for NEFT transactions through online banking.
5.6 Bankers expressed some inconvenience in the NEFT transactions. Some of the
bankers are not adhering returned NEFT transaction timings. As it was a new
concept for many banks, they had to understand it. Some are facing server
connection failures but very rare. Maintaining secrecy of passwords has become very
important. From bankers’ view reason for lack of transactions from common people
is that in DD & cheque people clearly see the physical form of paper. In e –
transaction, customers are afraid whether it would reach beneficiary or not. Some
banks are following a policy of not continuing any staff in the same position for more
than one year. Since many components are involved in SFMS/NEFT, it is
inconvenient for operations and IT staff. Though very few in number, some banks
expressed the need to recruit people who are familiar with digital certificate process,
message formats. Since last batch is7 .00 pm, the working hours have increased for
concerned persons at Head Office.
46
5.7Critical technical problems expressed by some banks are:
1. Pending authorisation files go beyond reject file folder. The reject folder may be
separately built within the SFMS/NEFT. 2.At times
a portion of file is left, as it contains a transaction with duplicate reference no. This
leads to rejection of entire file and bulking of the rejected folder.
3. One loop may be
increased to at least 50 transactions.
4. Every 6 months, RBI brings some changes in software and in response to that
bank has to change middleware and CBS system.
5. It is difficult to send the users to get trained at RBI centres as compared to

getting trained at bank site.
6. Implementation of Digital Certificates in smart cards and ikey is not clear to some
of the bankers.
7. Belated credits have to be attended by the sender bank by calling on to receiver

directly in some cases.
8. Many bankers desire SFMS/NEFT to become real-time.
9. Customer awareness about IFSC codes has to be created.
10. Some banks wanted the default messages to come through SMS. They want the
customers to be informed about the status.
11. Some wanted the time frame for the reversal of transactions to be reduced.
12. There could be better sharing of problems at RBI side especially when major
prolonged failures are there.
13. Some banks wanted the three applications namely Gateway, Service centre and
Branch to be merged into a single application for better maintenance and operation.
14. Few banks wanted the charges to be increased to compensate the banks.
15. Some wanted one more batch to be added on Saturdays.
16. Some banks wanted th e flexibility for bank to use 2 or 3 levels of authorisation
based on the amounts.
17. Settlement period can further be reduced from 1 hour to half an hour.
47
Some of the banks visited as part of the
Survey can be seen here in the photos.
48
Impact on the customers:
5.8 Similar to the survey conducted on banks, a survey was conducted on
customers. However, this covered a diverse group of people from Officials,
Academicians, IT professionals, salaried workers, helping staff etc. All the customer
survey was done face to face. So a lot of oral enquiry was possible. Customers were
asked to answer a simple survey which consisted of around 13 questions. These
questions inquired about their awareness and experiences with NEFT transactions.
However due to limited and extremely diverse sample space of customers, they are
divided into employees and general public. Employees included officials,
academicians, and IT professionals. General public included salaried workers and
helping staff. Further due to extreme difference in awareness, both the groups were
asked to answer a different a set of surveys.
5.9 Based on the responses of the survey an analysis was made on the impact of
SFMS/NEFT on customers. Each response was given a score on a scale of 5. For
example if a response implied excellent awareness an d positive impact on the
customer, it would be given a score of 5. Now for each customer, an average of all
the responses is taken as the score of that customer. Some of the typical questions
are:
1. How did you come to know about NEFT transactions?
2. How many NEFT transactions did you make till today?
3. How many times did you receive money through NEFT?
4. Does the organisation you work make NEFT transactions?
5. Did you face any convenience in NEFT transactions?
6. Do you know the charges collected for NEFT transactions?
7. Do you know the minimum and maximum amounts for NEFT transactions?
8. Are you comfortable with the time taken for crediting the amount to the
beneficiary?
5.10 Based on the scores on the 5 point scale, impact was measured in the
following levels.
Less than or equal to 3 à Bad
Greater than 3 and less than or equal to 3.5 à Average
Greater than 3.5 and less than or equal to 4 à Good
49
Greater than 4 and less than or equal to 4.5 à Very Good
Greater than 4.5 à Excellent
5.11 Chart 5.2 shows the impact of SFMS/NEFT on customers (Employees). Around
20% are in the excellent zone. However when compared to the impact on banks
where the major share was in Very Good zone, in customers it is only in good zone.
Even that was only upper class of customers. In addition to this overall analysis,
there are some interesting observations and responses of customers. Some of them
are:
1. Many customers are not clear about the actual timings of NEFT transactions. They
feel it would be better if they are informed about convenient timings for faster
transfer.
2. Some of the customers are not comfortable with the actual time taken against the
expected. They want to know at least the status of their transaction if it was late.
3. Particularly, when it comes to interbank, few customers complained that it has

been taking 5 to 6 hours for crediting to the beneficiary.
4. Even if it is credited to the beneficiary, conformation message is delayed.
5. Around 40% are unaware of the charges collected for NEFT. Even if people who
knew the charges, are confused a lot with different charges collected from different
banks.
50
6. Almost none of the banks are using NEFT for intra bank transfer. They are
collecting charges for it much more than that of NEFT. So, implicitly NEFT is
becoming redundant in intra bank transfer.
7. Some customers complained that their bank is not providing them the purpose of
remittance to be filled.
8. Even during receiving, sometimes purpose of remittance is unavailable.
9. There is no uniformity and at least similarity among different banks in NEFT.
10. Funds transfer details are not available in the pass book.
11. Sometimes banks are ready to justify their preference to DD in the name of
charges, particularly if customer is aware of NEFT.
12. For NEFT, IFSC code is very important. But still IFSC code selection remains a
problem even in some banks’ net banking.
13. Above all people were happy with faster settlement compared to other payment
modes. A customer who has to wait one day for transfer is happy now due to
increased number of batches and settlement in 2 to 3 hours.
14. Around 65% people are either unaware or had a misconception about minimum
and maximum amounts of NEFT. This is really dangerous for popularity of any
payment system. Further, even some of the bankers feel that above 2 lakhs, there is
no NEFT and only RTGS can be made.
15. When some banks are following the method of debiting the charges extra from
account, some other banks are debiting from the sent amount. Even customer is not
informed about it before hand.
16. Finally, the above was only from employees. Due to very limited sample space of
general public, a strong analysis could not be drawn. However with the available
sample of general public, most of them are unaware of NEFT. Even if someone
knows it, at maximum it is related to his/her work place. This shows personal
awareness among common people was far below the required level.
51
Some of the people inquired as a part of the customer survey can be seen
in the photos below.
This is Mr Sadashiv Shinde from Maharashtra. He

made only intra bank transfers. His bank has not informed
him about NEFT. It collected charges more than Rs. 10 since
it used its internal mechanism for transfer. This is an
example of denial of best service available by some of the
banks
This is MrRaj Kumar from Andhra Pradesh. He is aware of

NEFT through his work place. His organisation makes regular
transactions for vendor payments.
This is Mr Subrat from Orissa. He made only intra bank

transfers. However, his bank has not collected any charges
for it.
This is Mr Naveen, a research scholar pursuing his PhD. Though

in the beginning, he was disappointed with the time taken
(mostly the next day) for crediting the amount to the beneficiary,
later with increased number of batches, he began to receive in 2
to 3 hours. Now he is happy with the service.
52
6. INPUTS FROM THE SURVEY
1. One of the best ways to create awareness about NEFT among common people is
direct the banks to provide NEFT forms in regional languages at branches.
2. For a huge public and people oriented project like SFMS/NEFT, restricting the
compatibility to proprietary software in long run may not be good. Taking the
example of making UIDAI project open source compatible in Kerala following their
state policy, it would be better if the entire application and its software requirements
are made open source.
3. Securing the passwords in today’s world is not an easy job. So to wish away such
a burden , biometric login, creation and authorisation can be introduced.
4. With availability of CBS in almost all the banks, gateway may be unified with CBS
or completely removed after proper care taken.
5. Making NEFT real time will be a path breaking step if taken. The biggest and
common request from bankers and common people is to make NEFT real time or at
least shorter batch length.
6. More strict rules have to be formed in returning conformation messages from

receiver branches or else real spirit will not be served.
7. Introductory interface which can be a web page for online banking or pass book
given during opening an account should be used properly to create awareness and
provide clarity about NEFT. IFSC codes of all the branches can be given on pass
book. Further a proper step by step procedure for an NEFT transaction can be
printed on the passbook. This will be a good step towards publicising NEFT among
rural customers for whom pass book is the only tool of banking.
8. Tracking the status of message by customer should be made possible. This can be
done by sending an SMS/email to the customer at appropriate timings.
9. An in depth analysis has to be done in adopting NEFT. It should consider the cost
analysis of bank and customer for a DD, its carbon print on atmosphere. This should
be compared to that of NEFT. If once NEFT is clearly proved to be profitable, then
banks can never think of their losing DD charges due to NEFT.
10. Batch timings should be informed to customers so that they make transactions in
more convenient timings.
11. Delayed credit should be investigated. Individuals/Banks involved should be

warned as delay in service is also a denial of service.
53
12. Purpose of remittance should be made compulsory. Whenever it is not required
it can be written as “No purpose”
13. It is better to promote NEFT with a single name rather than different names by
different banks. To publicise to the nook and corner of the country, a single name
would serve better.
14. After observing different NEFT arrangements of different banks, a uniform but
flexible system can be made to avoid any confusion across banks.
15. Maximum amount of NEFT is the biggest misconception of this system among
both bankers and customers. Extreme measures have to be taken to avoid this.
16. Banks must be directed to provide the best available method of money transfer
to customers. They should not be able to deny NEFT in intra bank transfers and
collect higher charges using their internal system.
17. Handling of NEFT by a single person at the branch has some problems. If that
person will be absent, then there would be no NEFT transactions for that day.
18. A separate NEFT complaint box should be set up at every branch. Those
complaints should be either directed to Customer Facilitation Centres or RBI.
19. A separate statement has to be made for NEFT charges in internet banking or
pass book. Also SMS sent as credit confirmation can be used to inform the charges.
20. Some banks are setting a maximum limit of NEFT transactions per day. Such
virtual limits should be removed by taking proper care.
21. Setting up of kiosks at branches or ATMs to make NEFT transactions can

increase the volume of NEFT transactions to a great extent.
54
7.Persons and Institutions who participated in the Survey:
1. S.Hemalatha Senior Manager Vijaya Bank

2. G.UmaSesh Branch Manager SBI
3. V.L Padmapriya Manager Indian Overseas Bank
4. A.V.S Sarma Manager Oriental Bank Of commerce
5. Saif Ahmed Yaqusi Officer Bank Of India
6. C.Sreenivas Deputy Manager SBI
7. M.V.V.S Sekhar Branch Manager SBH
8. J. Vijaya Kumar Assistant Manager Andhra Bank
9. K.V.Ramanaiah Officer Canara Bank
10.C.Rami Reddy Assistant Manager Andhra Bank
11.Rajat Raj RBI
12. NagojiMahadevBhogan DNS Bank Limited
13. Sunil B.Kedar DNS Bank
14. S.KishanRao Andhra Bank
15.AniruddhaP.Jukar SBM
16.M.K.Naresh Punjab National Bank
17.VimalArjun Joshi SBB
18.Amrik Singh RBI
19.Rajendra Kumar KerbaPatil RBI
20.Syad Ahmed Padder Jammu and Kashmir Bank
21.Wasim Ahmed Qadri Jammu and Kashmir Bank
22.MukulAgarwal Standard Chartered Bank
23.UshaPai RBI
24.S.Appaji RBI
25.Korobi Bhattacharya RBI
26.Sinu Alex South Indian Bank
27.J.V.S.R.K Prasad SBH
28.AnandLakshman Bank Of Baroda
29.A Vijay Kumar AGM KarurVysya Bank
30. A.B.K Rao Vice President (IT) ING Vysya Bank
31.A.K.Sinha AGM Union Bank Of India
32.SuvashisHalder COO China Trust Commercial Bank
33.Raghavendra Bhatt DGM Karnataka Bank
34.George Thomas Manager RBI
35.ManeeshDudpuri Manager RBI
36.Gyan Shankar Narayan Union Bank Of India
37.N.S. Gopalan Head IT Firstrand Bank
38.SajidHooda Deputy Manager Development Credit Bank
39.KamalakarR.Parate Asst. Manager IT Bassein Cath olic Coop Bank
40.Balakrishnan S Manager Tamilnadu State Apex Coop
Bank
55
References:
I acknowledge the source of inputs for my material from different websites.

1. www.rbi.org.in - This is from w here I have gathered statistics from its
publications such as Annual report, Monthly bulletin.
2. www.idrbt.ac.in - I got the back ground for SFMS system, the work flow and
material on INFINET,SFMS and NEFT.
3. www.npci.org.in - From NPCI website, I got statistics on ATMs.
56

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ANALYSIS OF IMPACT OF

INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

This is to certify that Mr. Gudivada Harsha Vardhan,

He was assigned the project “Analysis of Impact of

In this project assigned to Mr. Harsha Vardhan he has done

We wish him all the best in all his endeavours.

I am extremely grateful to Sri Raghuraj for his advice, innovative suggestions

2. Regulatory and Developmental Role of the Reserve Bank in Payment and

5. Analysis of impact of SFMS/NEFT on banks and customers – based on the

A survey was conducted among different bankers with a questionnaire focussed on

Similar to the survey conducted on banks, a survey was conducted on customers.

6. Inputs from the survey:

5. Analysis of Impact of SFMS/NEFT on banks and customers – based

6. Inputs from the survey

Evolution of Payment Systems in India:

Payment Instruments in India:

Developments in Payment and Settlement Systems:

3.3 Based on the recommendations of working group appointed by INFINET users

3.4 Key Features of SFMS :

• Modularized Web-Enabled Software enabling financial messaging within and

3.5 Security features of SFMS:

Confidentiality à Message and Channel Encryption

3.6 Design Features of SFMS:

3.7 Audit Services:

• Activity log of messages/Files exchanged

3.8 Archival and Retrieval:

• Rule based housekeeping

Instructions/messages/files are stored locally before being forwarded. Copies are

Functionality of SFMS is message creation and transportation to different nodes

3.11 Entities in SFMS:

The SFMS hub of IDRBT

• switches inter-bank messages & files

At branches, online servers or Offline servers or a combination of

A message can be created in SFMS in any of the following ways.

3.13 NEFT application at branch:

Following are main functions of NEFT branch application.

3.14 NEFT application at service center:

Following are the messages created at NEFT service center application:

3.17 Latest developments and Highlights:

1) Banks are directed to upgrade to latest hardware and software requirements

5) In 2010, a new message, N10 was introduced. This credit

4.1 Cheque clearing transactions(MICR and Non MICR)

4.1 CHEQUE CLEARING TRANSACTIONS

Project by Sri. G. Harsha Vardhan – IDRBT, Hyderabad

4.2.2 ECS Debit is used for

2.5 ECS credit

Chart 4.8: ECS credit and debit

Table 4.3 RTGS transactions ( volume and amount in crores)

Total transaction volume = 100%

4.3.3 The increased percentage of customer remittance in total transactions might be

Chart 4.12: RTGS transactions

Table 4.4: NEFT/EFT transactions

4.4.2 The NEFT system has

1.5 (i)Enhancing Business

Table 4.5 Card Payments(Number,volume and amount in crores)

Debit) awareness and usage.

Table 4.6: Different types of transactions (Volume and Amount in crores)

Card transactions 2.9989 6836.89 4.569 10760.94 52.35586382 57.39524842

RTGS 0.0676 2448965.4 0.3296 3817271.25 387.5739645 55.87281266

Chart 4.20: Diffrent types of transactions NEFT transaction amount

7000000 RTGS transaction amount

3000000 Total ECS (Credit+Debit)

Cheque clearing amount