Understanding NEFT and IMPS: Key Differences and How They Work

Two primary methods of secure fund transfer within India are National Electronic Funds Transfer (NEFT) and Immediate Payment Service (IMPS). These systems, both developed and maintained by the Reserve Bank of India (RBI) and the National Payments Corporation of India (NPCI), facilitate seamless and reliable electronic fund transfers. In this article, we will delve into the detailed workings of NEFT and IMPS, their differences, and when to use each.

What is NEFT (National Electronic Funds Transfer)?

National Electronic Funds Transfer (NEFT) is a centralised payment system operated by the Reserve Bank of India (RBI). Unlike IMPS, which is managed by NPCI, NEFT operates on a batch settlement system, processing transactions in hourly batches (about twelve batches per day).

NEFT transactions are processed in a centralised manner, meaning that all transactions are consolidated and processed through the RBI network. This makes NEFT a reliable option for large fund transfers, especially for amounts exceeding the transaction limit of IMPS.

For example, NEFT can handle transactions up to a maximum limit of 5 lakhs (500,000 INR) in a day. These transfers are settled in batches, ensuring that each transaction is processed at the end of the day, providing a degree of security and reliability for larger transactions.

The following table summarizes the differences between NEFT and IMPS:

Feature NEFT IMPS Operated By Reserve Bank of India (RBI) National Payments Corporation of India (NPCI) Batch Settlement Hourly batches, 12 batches per day Real-time batch processing Transaction Limit 5 lakhs (500,000 INR) 2 lakhs (200,000 INR) Processing Time End of the day, within 24 hours Within 2 minutes after login

What is IMPS (Immediate Payment Service)?

Immediate Payment Service (IMPS) is a real-time money transfer service managed by the National Payments Corporation of India (NPCI). Unlike NEFT, IMPS is set up to provide fund transfers on a real-time basis, meaning that the transfer is processed almost instantly.

IMPS transactions are settled in a real-time batch processing system, making it ideal for instant money transfers, especially for smaller transactions. The transaction limit for IMPS is 2 lakhs (200,000 INR), and the process is much faster, often taking no more than 2 minutes from the time the transfer is initiated.

When to Use NEFT vs. IMPS

The choice between NEFT and IMPS depends on the nature and amount of the transaction. Here’s a quick guide to determine which method to use:

NEFT for Large Amounts: If you are transferring a larger amount of money, NEFT is the better option due to its hourly batch processing and higher transaction limit of 5 lakhs (500,000 INR). IMPS for Instant Transactions: For instant money transfers, preferably for smaller amounts such as between Rs. 10,000 and Rs. 2 lakh, IMPS is the preferred method due to its faster processing and real-time batch processing.

Key Organizations Involved

Both NEFT and IMPS are significant in the Indian financial system, with their operations and management by various organizations:

National Payments Corporation of India (NPCI)

NPCI is a not-for-profit company under the provisions of Section 8 of the Companies Act, 2013. It acts as a hub for all electronic retail payment systems in the country. The company was formed to bring about innovations in the retail payment systems, using technology to achieve greater efficiency in operations and widening the payment systems.

NPCI is largely owned by 56 member banks, with significant ownership by nationalized banks, new generation private sector banks, and foreign banks. The major promoters are six nationalized banks and two new generation private sector banks, with two foreign banks holding a minor stake.

Reserve Bank of India (RBI)

Founded in 1935, the Reserve Bank of India (RBI) is the central bank of India, responsible for regulating the country's monetary policy and supervising the financial sector. RBI operates NEFT as part of various banking services, backing these payment systems with a robust and secure infrastructure.

In summary, NEFT and IMPS are fundamental components of the Indian financial landscape, each catering to specific needs based on the amount and the urgency of the transaction. By understanding the differences and choosing the right payment system, users can ensure smooth and secure transactions.