What is NEFT and RTGS – Difference Between NEFT and RTGS online funds transfer?

NEFT and RTGS are the two convenient modes of money transfer between banks in India.

The acronym “RTGS” refers to for Real Time Gross Settlement, it is a unique and     popular fund transfer mechanism which enables the transfer of money between two banks on a “real time” and on “gross” basis.

“NEFT” is the abbreviation for National Electronic Funds Transfer which is an online system for transferring funds between financial institutions. This system was introduced in 2005 and is highly improved version of EFT (Electronic Funds Transfer) which was confined to a select centre.

•The fundamental difference between RTGS and NEFT which can be clearly educed from the above definitions is that RTGS is based on gross settlement and NEFT is a net-settlement process.

•RTGS is the swiftest money transfer system through the banking channel as it is done in real time (‘push’ transfer), while NEFT being net based is comparatively slower than RTGS.

•In RTGS payment transaction will not involve any waiting period which is the true meaning of “real time” settlement. Under normal circumstances the transactions are settled as soon as they are processed by remitting bank. The transaction is settled on one-one basis without clustering any other transaction making it a “Gross settlement”. The transaction is considered irrevocable as the money transfer occurs in RBI records. NEFT functions on a deferred net settlement (DNS) basis where transactions are completed in batches at specific times. These settlements takes place at a particular point of time and all transactions are held up till that time

•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.

•In RTGS the beneficiary bank credits the beneficiary’s account in a span of two hours post the receipt of funds transfer message. RTGS transactions are processed throughout the working hours of the system. Marking its difference yet again NEFT is done on net basis where the bank clubs transactions together and only the net amount is transferred. This settlement usually takes place 7 times a day on weekdays and 3 times on Saturdays. NEFT takes place within the same day if it is within the cut-off time and the next working day if it is beyond the prescribed cut-off time.

•Majority of the commercial banks have employed RTGS and it  is available in over 30472 numbers of branches while the count of banks which have purchased the software required to facilitate NEFT based transaction are over 89 and NEFT facility is available at approximately 32407 branches of banks in India. These branches may be available in remote corner of country also.

Hence, RTGS and NEFT though distinct in their functionality and process, are unique and similar in their ultimate service which is now rendering plethora of advantages making the easiest service available in service sector industry across globe.

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Sathish Emmadi

Sathish Emmadi is a co-founder & editor at Lastbull.com. He is presently working in IT for one of the world’s top mutual fund companies. Handled multiple projects in BFSI (Banking,Financial Services and Insurance) domain. An Engineering Graduate from NITW.

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