REMITTANCES

What is Remittance?
 An amount of money sent for payment for something
 Transfer of funds from one person to another say a Seller to a
Buyer or others
 A remittance is a transfer of funds to a local/overseas account. Ex:
Sending money to your child who is studying elsewhere or help your
maid to send money to her native etc.,
 Foreign remittances are done through an authorised remittance
agent.
 Illegal Remittance Agents are those who operate on a small scale.
They claim that they are able to provide remittance services
efficiently, without the need for any documents or identification. They
rarely use documents to validate and verify transactions.
Remittances prohibited
1. Remittance out of lottery winnings.
2. Remittance of income from racing/riding etc. or any other
hobby.
3. Remittance for purchase of lottery tickets, banned/proscribed
magazines, football pools, sweepstakes, etc.
4. Payment of commission on exports made towards equity
investment in Joint Ventures/ Wholly Owned Subsidiaries
abroad of Indian companies.
5. Remittance of interest income on funds held in Non-Resident
Special Rupee (Account) Scheme.
Various modes of Remittances
 Demand Draft

 Mail Transfer or Mail orders or Cash Orders

 Other different Electronic Modes, viz NEFT, RTGS, IMPS,

SWIFT etc.,
 More and more banks are now offering electronic mode of
transfer of funds like Electronic Transfer System, Cash
Management product etc. The remittance of funds through
these modes is much quicker and the time is reduced to hours
and in some cases even minutes.
Inward Remittance
 Inward Remittance means receiving money from abroad, for
credit to a local account wherein transfer instructions are
received through wire.
 Funds transfer takes around 24-48 banking hours to reach our
account held with the local bank.
 The Wire transfer will be processed and the money will be
transferred to the beneficiary account in 2 hours time,
provided the required documents are properly submitted to
the branch.
 Inward Remittances also can be received through a DD, an MT
towards Exports made or Advance Payments on exports.
Outward Remittance
 With modern technology in place for all remittances either,
royalty payment or dividend payouts, Agency commission, ECB
repayments, etc. With the state-of-the-art technology and
SWIFT tie-ups outward remittance is only a click away.
 Outward remittances are made towards Education Fee,
Imports made or other purchases. The modes can either be
through a DD, an MT and a SWIFT message ensures timely
remittance and reach.
 Rates are quoted by every bank through their Treasury Office,
in various currencies and passed on to the Bank’s front
office/back office for operational purpose.
Modes of Remittance -Payorder
 The banker’s cheque or PO is an instrument that a banker
issues after receiving the funds from the customer.
 Here, the payee is assured of receiving the funds on presenting
the PO.
 The banker’s cheque or PO is a bill of exchange issued by the
bank and drawn on the bank. The issuing branch and the
drawee branch are the same, that is, the branch will make
payment when the PO is presented.
 PO is an acceptable mode of payment at universities,
consulates for visa purposes, and subscription to magazines. As
compared to cash, POs are easier to handle.
Modes of Remittance –Demand Draft

 A DD is similar to a PO. It is also issued after the funds are

received from the customer.
 The main difference is that the PO is payable locally at the
branch which issues the PO or at the service branch of that bank.
The DD is issued by a bank's branch and made payable at a
branch in a different city.
 The DD is useful for movement of funds across cities.
 If the DD is lost a duplicate is issued after obtaining an
Indemnity on the request of the applicant.
 Some banks do not have the procedure of issuing duplicate DDs
and if it is lost the same is cancelled and amount credited.
National Electronic Funds Transfer

 National Electronic Funds Transfer (NEFT) facilitates

transfer of funds from any bank branch to any other
bank branch.
 This facility is implemented by Reserve Bank of India
(Department of Payment & Settlement Systems),
Mumbai.
 To facilitate quick transfer of NEFT messages, only
networked branches of Banks are part of the system. In
other words, Core enabled (CBS) branches can only
participate in NEFT system.
 National Electronic Funds Transfer

 The remitting bank branch prepares a Structured Financial Message (SFMS

message) and sends it to its Service Branch / Centre for NEFT in the centre.
 The NEFT Branch/Centre forwards the same to the RBI NEFT Centre (national
Clearing Cell, Mumbai) to be included for the next available settlement.
 At present, NEFT is settled in Eleven Hourly batches between 09.00 am to
07.00 pm on weekdays and Five Hourly 09.00 am to 01.00 pm on Saturdays.
 The designated nodal branch for all the NEFT related transactions, upon
getting the information consolidates and passes on to the RBI at the
settlement centre.
 The RBI at the NEFT Centre sorts the transactions bank-wise 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.
 The receiving banks process the remittance messages received from RBI and
afford credit to the beneficiaries’ accounts.
What is IFS Code (IFSC)?
 Indian Financial System Code (IFSC) is an alpha-numeric code
designed for unique identification of the participating bank
branches in India.
 This is a 11 digit code with first 4 characters representing the
bank’s code, the next one reserved for control character (0
appearing in the 5th position, at present) and remaining 6
characters to identify the bank branch.
 The IFS Code is common for both RTGS and NEFT remittances.
 The MICR Code has 9 digits to identify the bank branch. It is a
9 digit code, wherein, the first 3 digits refers to city code,
second 3 digits refers to bank code and final 3 digits refers to
branch code of that bank in that city.
Real Time Gross Settlement
 “RTGS” stands for Real Time Gross Settlement, it’s an online
payment system for quick money transfers within the country
introduced by RBI.
 The RTGS system facilitates e-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.
 This system is meant for online settlement of bulk payments / high
value transactions across the banks.
 RTGS is plays the role of a catalyst in the economic progress of the
country.
RTGS- Information Required
 The remitting customer has to furnish the following information to
a bank for effecting a RTGS remittance:
 Amount to be remitted.
 The account Number which is to be debited.
 Name of the Beneficiary Bank.
 Name of the Beneficiary Customer.
 Account Number of the Beneficiary Customer.
 Sender to Receiver information, if any.
 The IFS Code of the receiving bank branch.
Difference between NEFT & RTGS
NEFT
Works on Deferred net
settlement
Restricted to specific centers
Works through STP with
manual intervention
Provides better customer
service
Works on State of Art
Any amount can be remitted
RTGS
Works on Gross Settlement
Connected to all places
Works through STP without
manual intervention.
Provides better customer
service
Works on State of Art
Only amount above 2 lacs can
be sent
Cheque Truncation System
 CTS is also known as Image based clearing system
 This is a project undertaken by RBI in 2008
 This was first implemented in NCR Region followed by Chennai Region
 Cheque images and MICR (Magnetic Ink Character Recognizer) data are
captured at the collecting bank branch and transmitted electronically
 Faster clearing cycles; realization of proceeds within the same day also
 Better reconciliation / verification process
 Operation efficiency
 Centralized image archival system ensures data storage and easy
retrieval
 Reduction in manual tasks leads to reduction in errors
 Enhanced customer satisfaction due to reduced TAT’s
 Real time tracking/visibility of cheques
 Less fraudulent cases with secured transfer of images
 SWIFT
 The acronym stands for Society for Worldwide Interbank
Financial Telecommunications.
 SWIFT is a co-operative society. SWIFT also acts as a United
Nations sanctioned International Standards Body (ISO) for the
creation and maintenance of financial messaging standards.
 During these years, greater coverage has been provided to
cover a much more range of financial transactions, and new
message types are added to the system once a year in
November.
 The original network was superseded by an X.25 based
network in 1990 to cope with the increasing message
volumes, and in the early 2000’s the X.25 network was
replaced by an IP based network known as SWIFTNet.
 SWIFT
 Uniquely, SWIFT takes full liability for each message once they
have accepted it, coupled with this, the inbuilt security and
robustness of the network (consistently better than 99.999%
up-time every year), has led to SWIFT's dominant position in
the market.
 Although originally the network was designed to support the
requirements of Treasury and Correspondent banking
operations, it has over the years allowed other institutions
access to the services, although in some cases only to a
limited degree.
 SWIFT- Its users
 Banks, Trading Institutions, Money Brokers, Securities Broker Dealers,
Investment Management Institutions, Clearing Systems and Central
Depositories, Recognized Exchanges
 Trust and Fiduciary Service Companies, Subsidiary Providers of Custody
and Nominees, Treasury Counterparties, Treasury ETC Service Providers
and Corporate.
 The Society is owned by its Members, and to become a member, an
organization must hold a Banking License. In return Members own
shares in the society and have voting rights.
 All classes of members pay an initial joining fee and an annual support
charge, which differ for each class. In addition users are charged on a
per message basis by unit lengths of 325, 750, or 1950 characters
dependent on message type. The charges also vary depending on
volume tier. The pricing is calculated to cover all of SWIFT's costs and
investments with users then receiving regular rebates after these are
finalised.
 SWIFT Services
SWIFT operates a number of services, primarily:
GPA
 General Purpose Application, which only allows system

messages, i.e. messages from a user to SWIFT and vice versa,

not from one user to another.
FIN
 Financial Application, which is the user to user service

comprising System Messages MT0nn, User-to-User Messages

MT1nn through 9nn and Service Messages such as
Acknowledgements.
 SWIFT Services
 Additionally, SWIFT provides a number of services that are charged
for over and above the normal fees. A few of these are:
 IFT (Interbank File Transfer) -For bulk file transfer of messages, for
example low net value, high volume retail payments.
 ACCORD - A centralized confirmation matching bureau service.
 Directory Services - An automated and centralized Standard
Settlement Instruction service for message enrichment that at present
is limited to Treasury and Payment information.
 RTGS (Y-copy) - Mostly used for sending a copy of a message or
parts thereof to a third party, for example a Central Bank
 Country Specific (e.g. CREST, CHAPS Euro) - Where SWIFT are
either the carrier of the messages or the supplier of additional
network services.
How Does SWIFT Work?
 The SWIFT network has an architecture that supports the
requirements for a fully redundant 24x7 secure operation that is also
highly scalable. There are a number of components to this network.
 The System Control Processors are responsible for the operation of
the entire system. This includes:
 Session Management
 Software and database distribution
 Monitoring all SWIFT hardware and software
 Failure diagnostics and recovery
 Dynamic allocation of system resources

These are located at Operating Centres, 2 in the US centre

and 2 at the centre in the Netherlands.
 SWIFT
 The Slice Processors are responsible for Routing and safe
storage of messages & history, Generation of reports,
Delivery and non delivery message management, Retrival and
System messages maintenance etc.,
 A Computer Based Terminal (CBT) that is also referred to as a
SWIFT interface is located at each user site.
 These terminals support the connectivity to the local regional
processor and facilitate both manual entry of messages and
the bridge to originating applications.
 There are many vendors of these interface devices although
SWIFT themselves have by far the largest market share.
 Trade Finance
 In its simplest form, an exporter requires an importer to prepay for
goods shipped.
 The importer wants to reduce risk by asking the exporter to
document that the goods have been shipped.
 The importer’s bank assists by providing a letter of credit to the
exporter (or the exporter's bank) providing for payment upon
presentation of certain documents, such as a bill of lading.
 The exporter's bank may make a loan to the exporter on the basis
of the export contract. The type of document used in the process
depends on the nature of the transaction and how evidence of
performance can be shown (i.e. bill of lading to show shipment).
 It is useful to note that banks only deal with documents and not
the actual goods, services or performance to which the documents
may be relating to.
Trade Finance
Trade Finance
Thank You