RTGS, NEFT, IFSC Code Meaning, Definition, Difference

RTGS & NEFT are the two main electronic payment settlement systems inIndia. There have been a lot of questions on RTGS and NEFT in the recent bank exams papers. We are here explaining about these two payment settlement system for the benefit of our visitors who are preparing for competitive exams.

What is RTGS & NEFT? InIndia we have two main electronic funds settlement systems for one to one transactions: the Real Time Gross Settlement (RTGS) and the national electronic fund transfer (NEFT) systems.

RTGS: The acronym ‘RTGS’ stands for real time gross settlement. The Reserve Bank ofIndia (India’s Central Bank) maintains this payment network. RTGS system is a funds transfer mechanism where transfer of money takes place from one bank to another on a ‘real time’ and on ‘gross’ basis. This is the fastest possible money transfer system through the banking channel. Settlement in ‘real time’ means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. ‘Gross settlement’ means the transaction is settled on one to one basis without bunching with any other transaction. Considering that money transfer takes place in the books of the Reserve Bank ofIndia, the payment is taken as final and irrevocable.

NEFT: The national electronic fund transfer (NEFT) system 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.

What is IFSC Code? IFSC or Indian financial system code is required to perform a transaction using NEFT or RTGS. IFSC code identifies a specific branch of a bank. IFSC code can be found out on RBI website. These codes are also known from your bank branch, and it is best to confirm the IFSC code, before going for any transaction.

What is the difference between RTGS & NEFT?

  • In RTGS payment transaction will not involve any waiting period which is the true meaning of “real time” settlement. NEFT functions on a deferred net settlement (DNS) basis where transactions are completed in batches at specific times.
  • Another significant factor that differentiates RTGS and NEFT is fixing a floor limit. RTGS is an exclusive message based transfer mechanism for an amount over Rs 2 lakhs i.e the minimum amount to be remitted through RTGS is Rs.2 lakhs. There is no upper ceiling for RTGS transactions. Contrary to that, NEFT is used mainly to transfer funds below Rs 2 lakhs, and this system is most commonly used for smaller value transactions involving smaller sum of money i.e from an amount as minute as one rupee. However, there is no maximum limit for transfers through NEFT.

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