Meaning

Electronic Funds Transfer is a system of transferring money from one bank account directly to another without anybanknotes/coins changing hands. EFT refers to the computer based systems used to perform financial transactions electronically initiated through the exchange or transfer of money either within the same financial institution or across multiple institutions using an electronic terminal (ATM, Point-of-Sale, Credit Card, etc), the telephone or the computer. It is also used for both credit transfers (such as payroll payments) and debit transfers (such as mortgage payments). Transactions are processed by the bank for payments where funds are transferred electronically from one bank account to the billing company's bank and usually takes less than a day after the scheduled payment date. The cost for an EFT may vary among the commercial banks.Advantages of using the Electronic Fund Transfer: It is easy and convenient. It is fast and secure. It is efficient and less expensive than paper cheque payments and collections.Disadvantages of using the Electronic Fund Transfer: If you enter the target account number incorrectly, there is no way to reverse the transaction since the bank would process thetransaction under the belief that the information you provided is accurate. Once an amount is transferred, the bank cannotreverse a transaction.

Types of electronic funds transfer? NEFT or National Electronics Funds Transfer RTGS or Real Time Gross Settlement IMPS or Immediate Payment Service.NEFTThe National Electronic Funds Transfer is a nation-wide money transfer system which allows customers with the facility to electronically transfer funds from their respective bank accounts to any other account of the same bank or of any other bank network. Not just individuals but also firms and corporate organizations may use the NEFT system to transfer funds to and fro.Funds transfer through NEFT requires a transferring bank and a destination bank. With the RBI organizing the records of all the bank branches at a centralized database, almost all the banks are enabled to carry out an NEFT transaction. Before transferring funds via NEFTyou register the beneficiary, receiving funds. For this you must possess information such as name of the recipient, recipients bank name, a valid account number belonging to the recipient and his respective banks IFSC code. These fields are mandatory for a funds transfer to be authorized and processed.Any sum of money can be transferred using the NEFT system with a maximum cap of Rs. 10, 00, 000.NEFT transactions can be ordered anytime you want, even on holidays except for Sundays which are designated bank holidays. However, the transactions are settled in batches defined by the Reserve Bank of India depending upon specific time slots. There are 12 settlement batches operating at present between the time slot of 8am to 7 pm on weekdays and from 8 am to 1pm on Saturdays with 6 settlement batches.RTGSReal Time Gross Settlement as the name suggests is a real time funds transfer system which facilitates you to transfer funds from one bank to another in real time or on a gross basis. The transaction isnt put on a waiting list and cleared out instantly. RTGS payment gateway, maintained by the Reserve Bank of India makes transactions between banks electronically. The transferred amount is instantly deducted from the account of one banks and credited to the other banks account.Users such as individuals, companies or firms can transfer large sums using the RTGS system. The minimum value that can be transferred using RTGS is Rs. 2 Lakhs and above. However there is no upper cap on the amount that can be transacted.The remitting customer needs to add the beneficiary and his bank account details prior to transacting funds via RTGS. A beneficiary can be registered through your internet banking portal. The details required while transferring funds would be the beneficiarys name; his/her account number, receivers bank address and the IFSC code of the respective bank.On successful transfer the Reserve Bank of India acknowledges the receiver bank and based on this the both the remitting bank as well as the receiving bank may/ may not notify the customers.IMPSMajority of the funds transferred using electronic channels are processed via NEFT or RTGS. But as the funds could only be cleared in batches using these transfer gateways, the National Payments Corporation of India introduced a pilot mobile payment project also known as the Immediate Payment Service (IMPS). Available to Indian public, IMPS offers instant electronic transfer service using mobile phones. IMPS interbank transfer service is available 24X7 and allows you to use your mobile phones to access your account and to authorize transfer of funds between accounts and banks. The IMPS service also features a secure transfer gateway and an immediate confirmation on fulfilled orders.IMPS is offered on all the cellular devices viaMobile Bankingor through SMS facility.To be able to transfer money via IMPS route you must first register for the immediate payment services with your bank. On obtaining the Mobile Money Identifier (MMID) and MPIN from the bank you can login or make a request via SMS to transfer a certain amount to a beneficiary. Meanwhile the beneficiary must link his/her mobile number with his/her respective account and obtain the MMID from the bank to be able to receive money.To initiate a transfer you must enter the beneficiarys mobile number, beneficiary MMID, the transfer amount and your MPIN while requesting the fund transfer. As soon as the transaction is cleared, you receive a confirmation SMS on deduction from your account and the money credited into the beneficiarys account. The transaction reference number can be noted for future reference.Thus IMPS enables customers to use mobile instruments as an instant money transfer gateway, facilitating user convenience and saving time and effort involved in other modes of transfer.The differencesThere is no cap on the minimum value that can be transacted via NEFT. RTGS system however only process transactions of a value starting from Rs. 2 Lakhs and above as it caters to gross settlements.While the NEFT system settles transactions in batches, RTGS option transfer funds in real time. Using NEFT if a transfer order is received after the defined cut-off time, the transaction will have to wait until the next clearance to be fulfilled whereas RTGS transactions are processed continuously throughout the RTGS business hours.IMPS stands out as the most convenient and instant mode of money transfer, allowing transfer of money across various accounts and banks on the go using a mobile device.

RBI AND EFT SYSTEMReserve Bank of India shall introduce a system called "The Reserve Bank ofIndia Electronic Funds Transfer System - 1997" which may be referred to as "RBI EFTSystem" or "System" and shall include the set of procedural guidelines detailedhereunder, participating banks and institutions and the system of computer andcommunication network through which funds transfer operation would take place.ObjectThe objects of the RBI EFT System are :(1) to establish an Electronic Funds Transfer System to facilitate an efficient,secure, economical, reliable and expeditious system of funds transfer andclearing in the banking sector throughout India, and(2) to relieve the stress on the existing paper based funds transfer and clearingsystem.CoverageThe System would cover centres viz. Ahmedabad, Bangalore, Bhubneshwar,Kolkata, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Kanpur, Mumbai, Nagpur,New Delhi, Patna and Thiruvanantpuram. Reserve Bank of India (to be referred to asReserve Bank, herein after) may extend the System, in phases, to other commerciallyimportant cities in Indiasome elements related to RBI EFT system "Beneficiary" means the person designated as such, and to whose accountpayment is directed to be made in a payment order.(d) "Beneficiary bank" means the branch of the bank identified in a payment order inwhich the account of the beneficiary is to be credited.(e) "EFT" means Electronic Funds Transfer.(f) "EFT Centre" means any office designated by the Nodal Department in each ofthe centres to which EFT system is extended, for receiving, processing and sending theEFT data file and the debiting and crediting of accounts of the participating banks andinstitutions for settlement of payment obligations or one or more of these functions. EFTCentre is referred to as "Sending EFT Centre" when it receives EFT data file from theparticipating sending banks and institutions. EFT Centre is referred to as ReceivingEFT Centre when it receives EFT data file from a sending EFT center.(g) "EFT Data File" means an electronic data file of a batch of payment orders forfunds transfers, processed and consolidated in the manner specified for transmission ofconsolidated payment orders and communications concerning payment orders fromEFT service branch to the EFT centre. Similar data files between EFT Centres shall bereferred to as "RBI Data File". The processed file to be transmitted by the EFT Centre tothe service branches shall be referred to as "NCC Data File".(h) "EFT" Service Branch" means an office or branch of a bank or institution in acentre designated by that bank or institution to be responsible for processing, sendingor receiving EFT data file of that bank or institution in that Centre and to do all otherfunctions entrusted to an EFT service branch by or under these Regulations. EFTService Branch is referred to as "Sending EFT Service Branch" when it originates anEFT Data File for Funds Transfer. EFT Service Branch is referred to as "Receiving EFTService Branch" when it receives EFT Data File from Receiving EFT Centre.(i) "EFT" System" means the Electronic Funds Transfer System established bythese Regulations for carrying out inter bank and intra-bank funds transfers within India,through EFT centres connected by a network, and providing for settlement ofpayment obligations arising out of such funds transfers, between participating banks orinstitutions.(j) "Execution" of a payment order in relation to a sending bank means thetransmission or sending of the payment order by it to the EFT Service Branch; inrelation to a Service branch it means transmission of the consolidated payment order inthe encrypted EFT data file to the sending EFT center; in relation to the sending EFTCentre it means the transmission of the payment orders to the receiving EFT Centre; inrelation to the receiving EFT Centre, it means the transmission of the payment order tothe receiving EFT Service Branch and in relation to the beneficiary's bank, it means thecrediting the beneficiary's account.(k) "Funds Transfer" means the series of transactions beginning with the issue oforiginator's payment order to the sending bank and completed by acceptance ofpayment order by the beneficiary's bank for the purpose of making payment to thebeneficiary of the order.(l) "Institution" means a public financial institution and includes a department oragency of the Central or State Government or any other organization approved by theReserve Bank as eligible to open a settlement account with it.(m) "Nodal Department" means the Department of Payment and Settlement Systemsof Reserve Bank which is responsible for implementation, administration andsupervision of the EFT System.(n) "Notified" means communicated electronically or in writing.(o) "Originator" means the person who issues a payment order to the sending bank.(p) "Participating Bank or Institution" means a bank or as the case may be aninstitution admitted for participating into the EFT System pursuant to Paragraph 3 ofthese Guidelines and whose Letter of Admission has not been cancelled .(q) "Payment Order" means an unconditional instruction issued by an originator inwriting or transmitted electronically to a sending bank to effect a funds transfer for acertain sum of money expressed in Indian rupees, to the designated account of adesignated beneficiary by debiting correspondingly an account of the originator. "Public Financial Institution" shall bear the meaning assigned to it in Section4A(1) of the Companies Act, 1956 and includes an institution notified under Subsection(2) of the Section.(s) "Public sector bank" means State Bank of India, constituted by the State Bank ofIndia Act, 1955, subsidiary Banks constituted under the State Bank of India (SubsidiaryBanks Act, 1959, the banks constituted under Section 3 of the Banking Companies(Acquisition an Transfer of undertaking) Act, 1970 and the Banks constituted underSection 3 of the Banking Companies (Acquisition and Transfer of Undertaking) Act,1980.(t) "Reserve Bank" means the Reserve Bank of India established under the ReserveBank of India Act, 1934 (2 of 1934).(u) "Security Procedure" means the set of procedural guidelines at Paragraphsunder Section of these Guidelines for the purpose of.(i) verifying that a payment order, a communication canceling a paymentorder or an EFT Data File is authorised by the person from whom it purports tobe authorized; and(ii) for detecting error in the transmission or the content of a payment order, acommunication or an EFT Data File.(v) "Sending bank" means the branch of a bank, maintaining an account of and towhich payment order is issued by the originator. When the originator is a participatinginstitution, reference to sending bank shall be construed as referring to the sending EFTcentre.(w) "Settlement Account" means an account maintained by a participating bank orinstitution for the purpose of settlement of payment obligations under EFT Systems.(x) "Valid Reasons of Non-payment" are the reasons listed as under due to whichbeneficiary bank fails to make payment to the beneficiary. The reasons are :a) Beneficiary not having an account with the beneficiary bankb) Account Number or account name indicated in the payment order notmatching with the number or name as recorded at the beneficiary bank.c) dislocation of work due to circumstances beyond the control of thebeneficiary bank such as earth quake, fire etc. at the place where thebeneficiary's account details are maintained etc.

PARTICIPANTSAdmission necessary for participationNo persons shall be entitled to effect a funds transfer in the EFT System, unlessthe sending bank or institution and the beneficiary bank or institution as the case maybe, is admitted for participation in the EFT System.Eligibility for admission as a participantTo be eligible to apply for admission, an applicant must1) be a bank or institution,2) have attained and continues to comply with capital adequacy norms, if any,applicable to it.3) is willing and able to comply with the technical operational requirements ofEFT System,4) be approved by the Reserve Bank as eligible to maintain a settlement accountwith it.Provided that, having regard to the pattern of ownership and such other relevant factors,all or any of the above conditions may be relaxed or dispensed with, if so decided by theGovernor.Procedure for AdmissionAny bank or institution eligible to be admitted in the EFT System may submit tothe Nodal Department, duly authenticated application in triplicate, containing fullparticulars in the form specified at Annexure-I (Form: FT-IA). Every application shall beaccompanied by an undertaking in the specified form to abide by the ProceduralGuidelines in the event of admission.The Nodal Department shall issue Letter of Admission as specified in Annexure-II(Form: FT-IB) to every bank or institution admitted into the EFT System.A directory of participating banks and institutions shall be prepared as on 31stDecember of each year and supplied to every bank and institution either on floppy or onthe network. Additions and deletions in the directory may be notified from time to time.

EFT PROCESS FLOW4.1 The parties to a funds transfer under this EFT System are the sending bank, thesending service branch, the sending EFT centre, the receiving EFT centre, the receivingservice branch at the beneficiary bank.Request for EFT by bank customer4.2 A bank customer (i.e. sender or originator) willing to avail of the remittancefacilities offered by a sending bank shall submit an "EFT Application Form" authorisingthe sending bank to debit the sender's account and transfer funds to the beneficiaryspecified in the EFT Application Form.4.3 Each participating bank/institution may design the format of "EFT ApplicationForm". A model EFT Application form is given at Annexure-III (Form: FT-2A).4.4 The sender's request for transfer of funds shall contain no condition other thandate on which funds transfer process should be initiated.4.5 The relationship between the customer (i.e. sender) and the sending bank will begoverned by an Agreement to be executed between them. The Agreement shall governevery payment order issued by the customer during the period of validity of theAgreement. A Model Customer Agreement is given at Annexure-IV (Form-2B).4.6 The value of each EFT transactions shall be for whole rupee only. Thisstipulation may be clearly indicated on the EFT Application Form.4.7 The upper limit for individual EFT transaction or payment order shall be fixed bythe Nodal Department. As of now, there is no upper limit for individual transaction.4.8 A transaction within the EFT system will be said to have been initiated when thesending bank accepts a payment order issued by the sender by issuing a "receipt"indicating the date of initiating funds transfer operation and the likely date on which thebeneficiary bank may make payment to the beneficiary.4.9 If in a single payment instruction, the sender directs payments to severalbeneficiaries, each payment direction shall be treated as a separate payment order.4.10 A bank branch may reject a customer's request for funds transfer when, in theopinion of the remitting branch,i) the customer has not placed funds at the disposal of the sending bank; orfunds placed is not adequate to cover the sum to be remitted and the servicecharge; orii) the beneficiary details given in the EFT Application form are notadequate to identify beneficiary by the beneficiary bank. The essential elementsof beneficiary's identification are :Beneficiary's Name :Centre name :Beneficiary Bank Name :Beneficiary branch Name :Beneficiary's Account Type :Beneficiary's Account No. :4.11 the sending bank shall prominently display at its premises the cutoff time uptowho shall receive the EFT Application Forms from its customers.EFT Scroll4.12 The sending bank would consolidate the applications received till the cutoff timeand forward the EFT Application Forms to its Service Branch with a copy of EFT Scroll.Scroll would contain only the key information pertaining to individual transactions. Themodel format of the EFT Scroll is given at Annexure-V (Form: FT-2c).Data Entry at Sending EFT Service Branch4.13 The sending EFT service branch shall prepare EFT Data File by using the softpackage supplied by the Nodal Department. Control procedure should be developed bythe sending bank to ensure accuracy in data entry with reference to the data elementsfurnished in EFT Application Forms/EFT Scroll and inclusion of all relevant transactionsin data entry. After EFT Data File is created, the Service Branch should generate FinalListing of Outward Transactions (Report No EFTR-1A) which would indicate the finalposition of data transmitted to EFT centre.Data Entry at sending bank level4.14 If a participant decides for decentralised data entry at the branch level, there maynot be need for movement of much paper documents from the sending bank (i.e.sending branch) to its service branch except for some control reports.4.15 For decentralised data entry at the branch level, participants themselves wouldhave to develop appropriate software for data entry. The record layout of the EFTBranch Outward file to be created at the branch is given at Annexure-VI. The data filecreated at the branch shall be transmitted through a network or sent on a floppy disketteto the service branch. The procedure for data transmission may be worked out by theparticipating banks/institution. It is recommended that the data file shall be encryptedand if sent through a floppy, should preferably be accompanied by a paper listing/scrollof the transactions contained in the floppy.4.16 The data file prepared at the branch level will be merged with the data fileprepared at the service branch. While merging the data, the service branch would havean opportunity to verify the data with reference to the paper listing/scroll received frombranches.National Clearing Cell (NCC) to function as EFT Centre4.17 At centres where Reserve Bank has National Clearing Cell (NCC), the dataprocessing functions pertaining to "EFT Centre" shall be discharged by the NCC.Transmission/Submission of EFT Data File to the EFT centre4.18 The remitting service branch shall transmit the EFT Data File to the EFT centreby using the communication network designated by Reserve Bank.4.19 INFINET will be the designated network. Sending EFT Service branches of theparticipating bank/institutions, with prior arrangement with NCC, may transmit the EFTData File through dial-up if transmission through INFINET becomes difficult.4.20 Participants may be allowed by NCC, on NCCs discretion, to submit the EFTData File on floppy on a temporary basis.4.21 Data transmission on network or submission of floppy diskette shall be followedby or accompanied by a Control Statement on the hard copy as per format at Annexure-VII (Form FT-3A) and Annexure-VIII (Form FT-3B).Form FT-3A if EFT Data File is sent on a floppy.Form FT-3B if EFT Data File is sent through RBINet.This Statement would indicate the number and value of transactions having a bearingon funds settlement at Reserve Bank and would serve as an authorisation to ReserveBank for debiting its current account and transmit the EFT transactions. This would alsohelp the EFT Centre to reconcile the EFT Data File received through the network bycomparing the number and value of transactions reported through FT-3A/FT-3B with thenumber and value of EFT transactions contained in the EFT Data File."NIL" Statement by the participants with no EFT Data File4.22 If a participant has no EFT Data file (neither a fresh outward transaction nor anacknowledgement), it shall send a "NIL" statement as per format at Annexure-IX (FormFT-3C) for Remitting NCCs information. If "NIL" report is sent through RBInet, hard copyis not required to be sent.Acknowledgement of receipt of EFT Data File by the EFT centre4.23 For the data files transmitted by sending EFT service branch through RBInet, theRBInet network software would generate an acknowledgement (specimen at Annexure-VIII) signifying the fact of receipt of EFT Data File by the sending EFT centre (i.e.sending NCC).4.24 Sending EFT service branches will also get back the FT-3A/FT-3B duly certifiedby sending NCC as "RECEIVED EFT DATAFILE" with the rubber stamp of NCC.4.25 Before issuing the "RECEIVED EFT DATA FILE" certificate on FT-3A/FT-3Bforms, NCC will make sure that the data file is put to validation tests and foundacceptable for further processing. Apart from encryption/decryption key matching, totalnumber and value of transaction reported on FT-3A or FT-3B Form would be matchedwith the total of transactions reported on floppy/RBInet file. If the EFT Data File fails thevalidation tests, the same would be rejected and the remitting bank would be advisedimmediately indicating the reason for rejection.Cut-off Time for receipt of EFT Data Files4.26 Nodal Department shall prescribe a cut-off time by which the sending EFTservice branches will upload the EFT Data File to the network. In the case ofsubmission of data file on floppy diskette, the cut-off time shall refer to the time uptowhich floppy diskettes would be received at the floppy receiving counter at NCC.4.27 Till further advised, the cut-off time shall be 11.30 p.m. and 2.30 pm on weekdays. On Saturdays, EFT centre it will be 11.30 pm.Transmission/Submission of EFT Data File more than once in a day4.28 Each participant would be permitted to submit only one EFT Data File for abatch. The EFT Data files received later would be ignored. . Two settlements would beconducted at 12.00 noon and 3 pm on week days and 12.00 noon on Saturdays.Transmission of RBI Data File by Remitting NCC to Destination NCC4.29 Immediately after the cut-off time, the sending NCC (i.e. sending EFT centre)shall consolidate the EFT Data Files received from remitting banks, sort them centrewiseand transmit the centre-wise files generated by the EFT software to the respectivereceiving NCCs (i.e. receiving EFT centres). These files called "RBI Data File" shall beencrypted with the keys exchanged between the sending NCC and the receiving NCC.Sending NCC shall also ensure that the RBI Data File is transmitted to the receivingNCCs the same day. RBI Data File would also be created for the remittancetransactions meant for banks at the local centre. This Data File would be used by NCCwhile playing the role of receiving NCC to process the inward remittances.NCC Listing of Outward Transactions4.30 After consolidating all EFT Data File received from the participants, the NCCshall supply to each participant "NCC Listing of Outward Transactions". This Report(Report No.EFTR-1B) would list key data elements of transactions reported in EFT DataFile. This report would be made available to the participants in the morning of the nextworking day. The Sending EFT service branch shall compare this report with EFTR-1Agenerated earlier at the service branch while transmitting the EFT Data File. It shallbring to the notice of sending NCC discrepancies, if any, in the EFTR-1B report thesame day.Data Processing at receiving NCC (i.e. receiving EFT Centre)4.31 Receiving NCC (i.e. receiving EFT centre) will wait for the RBI Data File from allother EFT centres. After the cut-off time (to be fixed by the Nodal department) on thesame day, the receiving NCC would consolidate the RBI Data Files received from allNCCs and thereafter, sort the consolidated data file beneficiary bank and branch-wise.Each beneficiary bank with at least one inward remittance transaction would have anNCC Data File.Receiving NCC transmitting NCC Data File to the beneficiary banks4.32 NCC Data files generated for the banks will be transmitted by receiving NCC tothe respective beneficiary banks through the RBInet network the same night. Thebeneficiary banks may collect the data file through the network after 5.00 a.m. in themorning.4.33 NCC will treat the acknowledgement issued by the network software as aconfirmation of receipt of the NCC Data File by the service branch of the beneficiarybank.Collecting NCC Data File from NCC on floppy4.34 Participants allowed to receive the NCC Data File on floppy will collect theirfloppies in the morning from the Delivery Counter of NCC. For convenience, therepresentative collecting MICR cheques in the morning from NCC may also collect thefloppy. The Identity Card of the representative will be checked while delivering thefloppies. NCC will not hand over the floppy to the representative without a valid identitycard.Data validation at receiving EFT Service Branch4.35 On receipt of the NCC Data File, the receiving EFT service branch shall firstvalidate the file using the validation routine provided in the EFT package. Apart from thevalidation with reference to the encryption key exchange with local NCC and checksumtotal for the contire file, the package would validate the individual records as well. Thisroutine would generate a Validation Report (EPTR-2A) which would indicate thevalidation status of every transaction.Daily Audit Report of NCC Data File4.36 After the data validation goes through, the receiving EFT service branchesshould verify the accuracy of the NCC Data File by comparing EFTR-2A report with the"NCC Listing of Inward Transactions" (Report No.EFTR-2B) supplied by local NCC.Therefore, it is necessary for participants to collect EFTR-2B report from local NCC.4.37 The transactions which would fail validation test and are indicated as "INVALIDTRANSACTION" in the EFTR-2A Report would have to be sent back by the receivingEFT service branch as "Rejected Acknowledgement". Only valid transactions would beused for generating branch-wise credit advices.Supply of Credit Reports/Advice to the branches of beneficiary banks4.38 Using the software package, the receiving EFT service branch would be able togenerate destination branch-wise credit reports (Report No.EFTR-4). This Report maybe generated in duplicate, preferably by using carbonised continuous stationery. TheReports shall be signed by an authorised official of the destination service branch. Thisreport (in duplicate) may be forwarded to the branches along with MICR clearingreports. EFTR-4 Report would bear a legend as "Print No.1" when it is printed for thefirst time.Advising branches through network/floppy diskette4.39 If a participant has opted for decentralised report generation facility at the time ofinstallation of EFT software package, the package would at the time of inwardprocessing, generate a file that can be used for preparing branch-wise inward data file.File description of the generated file is given at Annexure-XI. Software package forgenerating branch-wise file would have to be developed by such participantsthemselves.4.40 If a participant opts for decentralised report generation facility, the participantconcerned may develop suitable control procedure for ensuring authenticity andintegrity of data transmission to individual branches.Payment to beneficiary by the beneficiary bank4.41 The branches would make payment to the beneficiaries on the same day (i.e.Day-Two of EFT cycle, Day-One being the day of data processing at the sending NCC)by crediting the specified account of the beneficiary or otherwise placing funds at thedisposal of the beneficiary.Revocation of Payment Order4.42 A payment order issued for execution shall become irrevocable when it isexecuted by the sending bank. Any revocation, after the payment order is executed bythe sending bank shall not be binding on any other party in the EFT system.Issuance of acknowledgement by the beneficiary bank4.43 The beneficiary bank shall issue an acknowledgement for having made paymentto the beneficiary by returning the duplication of the Branch-wise Credit Report (ReportNo.EFTR-4) along with the EFT Scroll of the day. The duplicate copy would containremarks "Accepted" or "Rejected" against every transaction and should be signed bythe authorised signatory. A fresh Acknowledgement Serial No. may be indicated againstevery entry. Amount against the rejected items shall be circled for easy identification.The total number and value of rejected acknowledgement shall be totaled andincorporated in the EFT Scroll. Accepted acknowledgement will not figure in the EFTScroll.Data Entry of Acknowledgement Data4.44 Acknowledgement data would travel back to the sending bank in the same routeit had been received by the beneficiary bank. Data entry of the acknowledgementinformation would be made either at the branch level or at the Service Branch of thebanks along with the fresh remittance data of the day. This acknowledgement datawould form a part of EFT Data File and shall be transmitted / sent to the local NCC.Local NCC would send the acknowledgement to the NCC at the originating centre. TheNCC at the originating centre would send the acknowledgement data as a part of NCCData File to the bank which had originated the transactions. When thisacknowledgement data reaches the bank, it shall in turn advise the branch electronicallyor with an Acknowledgement Report (Report No.EFTR-5). EFT process cycle would betreated as completed when the Remitting Branch receives this EFTR-5 report andmarks off the entry in the Branch EFT Scroll.Reconciliation of Outward Transactions with Acknowledgement Data4.45 Participants may develop suitable software package for automatic matching andreconciliation of outgoing transactions and acknowledgement from the beneficiarybanks. This exercise is an essential element of EFT system and the participants arerequired to put in place a reconciliation system (either automated or manual) right fromthe first day of participation in EFT system.Advising the sender on payment to the Beneficiary4.46 The sending bank is not required to advise the sender the fact of an acceptedacknowledgement unless there is a specific understanding in writing between thesending bank and the sender. If there is any enquiry from the sender, the sendingbank is however, duty bound to advise the position to the sender.Refund by beneficiary bank in cases of Rejected Acknowledgement4.47 If the beneficiary bank fails to make payment to the beneficiary for one or more ofthe "Valid reasons for non-payment", the funds which the beneficiary bank had receivedshall have to be refunded to the sending bank. This is taken care of when thebeneficiary bank reports the acknowledgement advice as "Rejected" on the duplicatecopy of EFTR-4 Report. The beneficiary bank shall take note of this acknowledgemententry at the time of inter-branch fund settlement. Beneficiary bank is not required toinitiate any separate reverse EFT transaction.Sender to be advised in case of refund4.48 If the beneficiary specified in the sender's payment order fails to get paymentthough the EFT system for some valid reasons, the sender shall be informedimmediately after the sending bank gets the "Rejected Acknowledgement". The sendingbank shall also arrange to make payment to the sender by crediting the account of thesender or otherwise placing funds at the disposal of the sender.Beneficiary bank to advise the Beneficiary of the payment4.49 After crediting the account of the beneficiary, the beneficiary bank shall advisethe beneficiary of the payments made. The Statement of account/Pass Book entry shallindicate briefly the source of funds as well.4.50 The sender/originator shall be entitled to claim compensation in line with theextant instruction issued by DBOD on the subject of delayed credit to customeraccounts for collection of outstation cheques.Inter-Branch Funds Settlement4.51 EFT package has a facility of generating an "Inter-Branch Fund SettlementReport" (Report No.EFTR-6). This report would help the participants in reconciling theinter-branch accounting. Participants may develop control procedures to ensure that allentries are reconciled on a day-to-day basis. Service Branch may be made the focalpoint for organising this reconciliation exercise.Holiday at the Destination Centre on EFT Business Day at the Originating Centre4.52 If on an EFT business day at the originating centre, holiday is observed at theDestination centre, the receiving EFT centre would not be able to receive the RBI DataFile on the same day. The RBI Data File for that day would be processed at thereceiving EFT centre on Day-2 of the EFT cycle and the relative NCC Data Files wouldreach the beneficiary only in the morning of Day-3 along with the Fresh NCC Data Files.On such occasions the beneficiary banks might receive two NCC Data Files-one for theearlier day and the other on normal course. Inter-bank funds settlement for thebeneficiary banks would be on Day-3.Impact of EFTIn today complex world nothing is certain. Everybody live with his self-motive. Day by day threat is growing. Threat generally happen when we carry our money in cash. To protect from threat and for easy fund transfer, the Electronic Fund Transfer evolved. There is great impact of EFT on economy and as well as on society. The impact of EFT describe below:YEAR 2005-06 5.1.1 The overall turnover in the various payment and settlement systems rose by 35 per cent during 2005-06 on top of 67 per cent during 2004-05. The turnover in respect of RTGS transactions increased sharply. In terms of value, turnover in RTGS then constituted the largest component, followed by foreign exchange clearing and high value clearing among the Systemically Important Payment Systems (SIPS). 5.1.2 The turnover in retail payment systems recorded an increase of 13.7 per cent in value during 2005-06. These systems include the conventional cheque clearing system the predominant mode for retail payments (both the MICR and Non-MICR clearings). Retail payments system also included electronic systems, i.e., the Electronic Clearing Service (ECS-Debit and Credit), EFT, NEFT and card based systems (credit, debit and ATM cards). ECS was available at 44 centres as at end-June 2006. In order to facilitate electronic modes of payment, banks started providing innovative products to their customers by developing new products and integrating them with ECS/EFT/NEFT/RTGS at the back-end for settlement. 5.2 YEAR 2006-07 5.2.1 The annual turnover in the various payment and settlement systems rose by 37.5 per cent during 2006-07 (44.2 per cent during 2005-06). As a ratio to GDP, the annual turnover in terms of value increased from 6.0 in 2003-04 to 10.3 by 2006-07. The rise in the turnover could be attributed mainly to increased activity in financial markets which, in turn, reflects various measures to widen and deepen the various segments of the financial markets. The expansion in the turnover during 2006-07 was led by the systemically important payments systems (SIPS); the turnover in the SIPS segment constituted more than four-fifths of the total turnover. Amongst the various constituents of the SIPS, the RTGS constituted the largest segment in terms of value (over 50 per cent), followed by foreign exchange clearing and high value clearing. The turnover of the RTGS system continued to expand rapidly, both in terms of volume and value (60 per cent growth in the latter during 2006-07 on top of an increase of 183 per cent during 2005-06). The growth in RTGS could be attributed largely to the movement of large value time critical payments to the system and the widening of the RTGS network to cover more bank branches. 5.2.2 The growth in turnover (in value terms) of the various retail payment systems - cheque clearing, electronic clearing service and the card based payment system - was 11.8 per cent in 2006-07 on top of a growth of 30.7 per cent in 2005-06. The turnover of the clearing at MICR CPCs increased by 20.5 per cent in 2006-07 on top of the growth of 19.6 per cent in 2005-06. The volume and value of cheques processed at the MICR CPCs continued to grow, with the turnover being more than three times that of the non-MICR CPCs during 2006-07. Nonetheless, growth in the combined turnover of the cheque clearing systems - MICR and the non-MICR centres - witnessed a deceleration from 30.6 per cent in 2005-06 to 10.6 per cent in 2006-07. 5.2.3 Electronic clearings - comprising electronic clearing service (ECS), electronic funds transfer (EFT) and national electronic funds transfer (NEFT) - continued to record a strong growth; about 74.6 per cent during 2006-07 as compared with 37.2 per cent during 2005-06. The ECS facility was available at 64 centres at end-March 2007. Under the ECS, the pace of growth of debit clearing transactions was much higher than credit clearing, as many utility companies/banks had been utilising the system for collection of monthly payments/EMIs. The waiver of processing fees on banks for transactions under the ECS, EFT, RTGS and NEFT was extended up to March 31, 2008 in order to promote electronic transactions. 5.2.4 The banks had started providing various e-payment services to their customers using the NEFT as a back-end. The NEFT network increased from 1,755 branches in March 2006 to 22,978 branches in March 2007. Daily average settlement through NEFT in 2006-07 was Rs.150 crore. 5.3 YEAR 2007-08 5.3.1 The value of annual turnover through various channels of the payment and settlement systems during 2007-08 increased sharply by 41.8 per cent as compared with 37.5 per cent during the previous year. As a result, the ratio of annual turnover to GDP, increased to 12.7 in 2007-08 from 10.2 in 2006-07 and 8.6 in 2005-06. Growth in the turnover during 2007-08 was led by the systemically important payment systems (SIPS) transactions and the settlement of financial market clearing which continued to witness a robust growth during the year. The share of these two types of transactions in total transactions increased to 85.1 per cent during 2007-08 from 82.9 per cent during 2006-07. The turnover of the RTGS system increased sharply by 47.8 per cent during 2007-08 on top of 60.1 per cent growth witnessed during 2006-07. 5.3.2 The turnover of the various retail payment systems combined together increased by 23.4 per cent during 2007-08 from 11.6 per cent in 2006-07 mainly on account of sharp growth in retail electronic funds transfer. Cheques continued to be the predominant mode of retail payment, though the share of retail electronic mode of payment increased during 2007-08. 5.3.3 The electronic funds transfer increased by more than five times during 2007-08 over the previous year, reflecting a significant increase across all modes of retail electronic funds transfer systems. There had been a growth in the volume and value of transactions put through ECS (both credit and debit) due to increase in both the coverage and awareness about the ease in using this system. The ECS as also NEFT were being preferred for making refunds of subscription to IPOs. The EFT, which was operationalised in 1995, was now permitted only for Government payment. All other electronic retail funds transfers were encouraged through NEFT which is a much more secure payment system. NEFT ensures a wider geographical coverage. Both these factors contributed to growing volumes being put through NEFT. 5.4 YEAR 2008-09 5.4.1 The total turnover under various payment and settlement systems rose by 13.9 per cent in terms of value during 2008-09 as compared with 41.8 per cent during 2007-08. As a ratio to GDP, the annual turnover in terms of value increased marginally from 12.7 per cent in 2007-08 to 12.9 per cent in 2008-09 (Table 9.1). The Systemically Important Payment Systems (SIPS) share in the total turnover accounted for 53.8 per cent followed by Financial Markets Clearing at 33.9 per cent. The SIPS continued to exhibit the rising trend and there was an increase of 12.2 per cent in terms of value in 2008-09 on top of the increase of 39.6 per cent in the previous year. The rise was mainly contributed by increase in Real Time Gross Settlement (RTGS) transactions in 2008-09. 5.4.2 The year 2008-09 registered a decline of 5.9 per cent in the overall turnover of various retail payment products as compared to an increase of 23.4 per cent during 2007-08, mainly on account of negative growth in retail electronic clearing and MICR clearing. The depressed primary and secondary market in 2008-09 partly contributed to the drop in turnover from the high base in 2007-08. 5.4.3 Electronic fund transfer systems comprising electronic clearing service (ECS), electronic funds transfer (EFT) and national electronic funds transfer (NEFT) showed a decline of 57.1 per cent in value during 2008-09 as compared to a rise of over 422.0 per cent during 2007-08. The sharp growth in 2007-08 was due to the transactions relating to refund of oversubscription amount relating to IPOs floated by companies through ECS Credit and NEFT. The ECS Debit and EFT/NEFT showed a growth of 36.9 per cent and 79.6 per cent, respectively, in terms of value. 5.4.4 At the end of March 2009, over 55000 branches of 89 banks were participating in NEFT. To encourage the retail electronic payment systems various measures were initiated by the Reserve Bank, viz., (i) facilitating initiation of NEFT transactions by accepting cash from walk-in customers (from the earlier account to account transfer), (ii) option to make credit card payments, (iii) extending the settlement time window for NEFT by one and half hours. Reflecting these, there has been substantial increase in both the volume and amount of transactions in retail electronic fund transfer systems during 2008-09. 5.5 YEAR 2009-10 5.5.1 The total turnover under various payment and settlement systems registered a growth of 15.6 per cent in terms of value during 2009-10, as compared with 13.3 per cent during 2008-09. The annual turnover in payment systems had been increasing as a ratio of GDP which was consistent with the financial deepening of the economy. 5.5.2 The NEFT system was strengthened by: (i) Enhancing Business Continuity Plans/ Disaster Recovery arrangements, ii) Mandating creation of Customer Facilitation Centre (CFC) for prompt resolution of customer complaints, (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 1300 hours on Saturdays. (iv) Mandating Positive Confirmation to be sent to the originator confirming successful credit to beneficiarys account. NEFT is presently available across over 81,000 branches in the country. Year 2010-11 :- 5.6.1 The electronic payment products provide speedier, cost effective and secure payment mechanism to customers in comparison to traditional paper based payment instruments. The evolution of electronic payment products in the country has progressed through two phases: (i) introductory phase and (ii) rationalisation phase. 5.6.2 During the introductory phase, electronic products like Electronic Clearing Service (ECS) and Electronic Funds Transfer (EFT) were introduced by the Reserve Bank. These systems were decentralised, serving the population of specific areas. The focus during the rationalisation phase has been to introduce centralised pan-India payment solutions like the Real Time Gross Settlement (RTGS), National Electronic Funds Transfer (NEFT) and National Electronic Clearing Service (NECS) that enable servicing customers spread throughout the country with settlement at a central location. This phase also coincided with the implementation of Core Banking Solutions (CBS)/centralised liquidity management solutions in banks. 5.6.3 To streamline the process flow in credit-push systems like NEFT, RTGS, ECS (Credit) and NECS systems, banks can credit beneficiaries accounts based solely on account number details subject to safeguards. 5.6.4 RBI has been waiving processing charges for retail electronic payment systems since the year 2006. It has now been decided to allow the clearing houses/processing centres to levy processing charges on the originating banks. Further, the destination banks will also levy some nominal charges on the originating banks as a compensation for usage of their infrastructure. 5.6.5 A new value band in the `1-2 lakh segments under NEFT was created, with customers having to pay lower charges. The threshold value for RTGS transactions has since been raised to `2 lakh.

Preventing Electronic Funds Transfer Fraud PaysThe motives behind EFT fraud are vast and complex. Common motivating factorsinclude significant financial gain, desire to master the EFT system, thrill of the deed,and employee revenge.Often, very large dollar amounts are transmitted over EFT networks during a singleEFT transmission. By fraudulently altering payment instructions in the EFT process,an individual could potentially steal large sums of money. Although it is difficult, ifnot impossible, to obtain accurate statistics on EFT fraud, one could suggest thatmillions of dollars are loss by companies per year to fraudulent EFT paymentinstructions. In order to avoid embarrassment and a potential decline in share price,most companies prefer not to release information pertaining to fraudulent activity tothe public. Hackers commonly penetrate systems as a recreational activity. When asked abouttheir reasons for compromising a computer or introducing a virus on the Internet,hackers commonly state that their intentions were not to cause harm but to seewhether they could actually do it. Similarly, those who commit EFT fraud maymerely want to determine whether they can perfect the EFT system and/or process.EFT crime offers an intellectual challenge, which is as attractive to some as theopportunity for financial gain. [1]In todays corporate world, mergers, acquisitions, and streamlining of businessprocesses are common occurrences. Positions sometimes become redundant, andemployees consequently lose their jobs and livelihood. Such an environment increasesthe risk of EFT fraud. An employee at the EFT controls could anticipate a loss ofemployment and retaliate against the company by releasing a fraudulent EFT paymentto their own bank account.STEPS FOR PREVENTIONIn order to reduce the risk of fraud, several controls can be incorporated into the EFTprocessing environment. The integration of these preventive steps into the process willreduce the risk of EFT fraud. However, these steps should not be considered a silverbullet, which will spoil all fraud efforts. Define the EFT Process and Control PointsAn important first step is to gain an understanding of the EFT solution and process.To facilitate this understanding, a useful exercise entails defining the EFT process andprocedures used to transmit EFT files to the financial institution. During this process,it is also useful to identify risks, vulnerabilities and control points. Technicalspecifications often provide an excellent starting point. If technical specifications arenot available, it is helpful to conduct an informal workshop with all necessaryemployees whom you know are involved in the EFT process (e.g. Finance, Payroll, ITbusiness representatives, etc.). Any employees involved in EFT manual andautomated processes and supporting infrastructure should be consulted. Uponidentification and definition of the EFT process, risks vulnerabilities and control pointsshould be outlined. Refer to Exhibit 2 for examples of key risks associated with theEFT process. Define EFT Policies and ProceduresThe real threat faced by finance managers is rather mundane, which includes how tokeep their own staffs from ripping off the company. The solutions are similarlyordinary and include common sense policies and procedures pertaining to:Auditing regularly;Reconciling promptly;Screening employees carefully; andRequiring two approvals before funds can be transferred. [2]In order to ensure consistency of EFT practices, it is important to establish formalprocedures. All employees involved should be educated on the content of theprocedures. In addition, it is necessary to establish an EFT policy, which definesacceptable practices and implications of non-compliance with the policy. Prior toparticipating in the EFT process, employees should be required to read and abide bythe conditions stated in the policy. The criticality and integrity of the EFT processmust be stressed in the policy.Ensure Physical Security Surrounding All EFT ComponentsPhysical security surrounding the EFT hardware and software components cannot bestressed enough. On occasion, I have conducted reviews of companies EFTprocesses and noted entire solutions could be easily compromised because of anoutright disregard for physical security. Frequently, companies install a financialinstitutions EFT software on a standalone workstation. If this workstation utilizes aNT 4.0 platform and lacks physical security, the potential of fraudulent activityincreases. Following are steps, which could be used to easily compromise such aconfiguration:1) Gain physical access to the EFT workstation;2) Reboot the EFT workstation from diskette;3) Download the NT Security Account Manager (SAM) database to diskette;4) At a remote workstation, use l0phtCrack (a tool available on the Internet) tocrack the SAM;5) Return to the EFT workstation and login with an NT login ID, which was cracked with l0phtCrack;6) Install a keystroke logger program on the NT workstation, and subsequentlyuse the logger to capture passwords used to authorize EFT file transmissions tothe bank;7) Send fraudulent EFT payment instructions to the bank; and8) Leave the country for vacation.As the example demonstrates, physical security is a key control surrounding the EFTprocess. If your EFT solution lacks physical security, the mentioned scenario shouldalarm you.Implement Effective EFT Application SecurityToo often, organizations wholeheartedly purchase and immediately implement a newapplication without understanding the security capabilities of the software. Anemphasis is placed on installing the application into production as soon as possible.Similarly, EFT applications are sometimes placed in a production environmentwithout the appropriate logical controls. Whilst EFT software packages support similarsecurity capabilities, these applications also offer unique security configurations. Priorto implementation, an application security review should be conducted to determinethe appropriate security parameters. In addition, user profiles should be designed toenforce segregation of duties amongst sensitive EFT functions (e.g. application IDswith the ability to transmit EFT files or create/delete user IDs) and the least privilegeprinciple. Exhibit 3 provides an example of a user profile matrix. The matrixdemonstrates that any combination of users may be used in the creation,authorization, and transmission of files, provided that two separate authorizers areused. In the following examples, at least two users are required to complete thetransaction. This example demonstrates the simplicity of generating secure EFT accessprofiles. Upon completing the access security review and designing user profiles, management endorsement should be obtained through signoff.Although this may appear to be too official, the transmission of millions ofdollars per year through an EFT application is a serious matter. Some key items toconsider prior to implementation of an EFT application include:Minimize the number of application administrators;Change default password for administrator account;Maintain passwords to default application IDs in a secure location;Require dual authorization for the creation and deletion of users;Require dual authorization for the release of EFT files to the bank;Ensure timely maintenance of user accounts;Limit failed login attempts to the application;Require periodic password changes; andLimit dollar amounts of EFT transmissions (e.g. EFT file cannot transmit apayment amount exceeding $20,000,000).Implement Effective Network Operating System SecurityAs mentioned earlier, physical security of an EFT workstation is crucial. If aworkstation is physically accessible, the network operating system could serve as anavenue of attack. In addition, network operating system services and ports should bereviewed for appropriateness. This is commonly referred to as hardening theoperating system and is similar to the application security review process. Servicesand ports not required within the operating system should be disabled to reduce therisk of unauthorized access to the workstation. Also, an additional key control entailsdisabling the floppy disk drive, so that the network operating system does not bootfrom diskette. [4] This prevents an individual from easily gaining unauthorized accessto the EFT application. Following are additional controls and resources, which shouldbe used to enhance network operating system security:Limit the number of network operating system users with access to the EFTworkstation;Enable the screensaver timeout feature;Restrict remote access to the terminal through in-bound modem connections;andUtilize the SANS Institutes Windows NT Security Step By Step documentas a guide for securing the network operating system.Implement Effective Security Surrounding EFT DataEnsuring integrity and confidentiality of data throughout the EFT process is critical. Itis data-related crimes, which are the most common. [5] EFT crime is often difficult todetect because data can be manipulated by instructions hidden in complex computersoftware. [1] As Exhibit 2 illustrates, EFT data can reside in multiple locations andmust be logically secure at several layers (e.g. database, network operating system,diskette and transmission). Since EFT data is potentially subject to modification at thementioned layers, automated and manual controls should be employed to minimizerisk. For example, upon generation, an EFT file could be saved to a directory, whichresides on a network server. Access surrounding the EFT file and directory should berestricted to prevent tampering with dollar amounts and/or bank account details. Inaddition, as Exhibit 2 illustrates, the EFT process could involve saving data to diskette.Care should be given to physical security surrounding the diskette in order to decreasethe risk of data modification. It is good practice to maintain the diskette under dualcontrol until the EFT file is transmitted to the financial institution. EFT processes, which have involved the use of the Windows Notepad program tomake revisions to data. This practice is unacceptable and should be highlydiscouraged. Uncontrolled changes to data could result without a supporting audittrail. Finally, during transmission of the EFT file to the financial institution, data mustbe encrypted to ensure privacy and integrity. Encryption of EFT data can occur viahardware or software.