6 Jan 2012

Banks In India Are Not Providing Positive Confirmations Of NEFT Transactions

The national electronic fund transfer (NEFT) system of India is a mechanism that ensuring electronic fund transfer facility to banking customers in India. NEFT system is a good example of use of technology for effectuating banking transactions in India. The

Reserve Bank of India (RBI) has been issuing guidelines and instructions from time to time to streamline NEFT system in India. However, not all the directions of RBI pertaining to NEFT system are followed by banks in India.

For instance, RBI has in the past directed the banks to ensure positive confirmation to the originator regarding a successful NEFT transaction. However, banks are not following this direction of RBI. Reacting to the same, RBI has through the notification numbered RBI/2011-12/341 DPSS (CO) EPPD No.1199/04.03.01/2011-12, dated 5th January 2012, asked the banks of India to ensured that they must put in place a mechanism which would enable NEFT participating banks to provide a positive confirmation to the remittance originator confirming the successful credit of funds to the beneficiary’s account.

This modification was implemented in NEFT with effect from March 01, 2010 and banks were advised to confirm completion of necessary arrangements to ensure its implementation.

However, even though banks have had sufficient time for making necessary changes in their systems, it is observed that not all banks are sending such confirmations. In most cases, the bank that originated the remittance is unable to provide the confirmation to the originator / sending customer since they do not receive the corresponding confirmation message (N-10 message) from the beneficiary bank. Recent analysis shows that in respect of a large number of banks, the percentage of positive confirmation sent vis-a-vis inward messages received is lower than 10%. A positive confirmation is a unique feature of NEFT and has played a major role in popularising the system amongst the users. Non-adherence to instructions in this regard will undermine the customer service efficiency of the system.

It is once again reiterated that all banks should put in place systems to ensure positive confirmation is sent to the originator in accordance with our above mentioned circular. While it is expected that such confirmation messages are sent as soon as the beneficiary account is credited, it should not exceed beyond end-of-the-day under any circumstance.

Banks have been advised to immediately report to RBI the existing status/process being followed by them for sending such messages, both as originator and receiver. Banks have also been advised to put in place suitable mechanisms immediately by which such confirmation will be sent for all inward / outward messages, if such systems are not already in place. A copy of banks plan of action in this regard is required to be sent to RBI within 15 days of receipt of this notification letter. The performance of banks in this regard will be monitored regularly and any deviation will be viewed seriously.

These directions are issued by Reserve Bank of India, in exercise of the powers conferred by section 18 of Payment and Settlement Systems Act, 2007 (Act 51 of 2007).