E- Banking

Effective Funds Management through E Banking

Introduction
• Cash can be referred to as the Lifeblood of any business.

• Effective and Efficient Cash Management is critical to the liquidity and

solvency of the Business as Cash is the focal point of the funds flow in
a business.
• Cash in a very narrow msens means cash currency and in a broader
sense includes Cash equivalents like deposits with a bank,
receivables, marketable securities that can be quickly converted into
cash
Introduction

• Further Cash received at different business centres should be

transferred to MAIN BUSINESS place so that the business will be able
to use the cash resources to increase sales turnover and profitability
and in case of borrowings also reduce interest costs ( eg Cash
Credit/OD facilities)
• Collection of securities realized and receivables , using paper- based
Payments and Settlement systems had several disadvantages
Introduction
• Some of the paper -based payment and settlement disadvantages are
as under :
• Realization of instruments was taking 10-15 days for outstation
cheques/ drafts .Thus the business was suffering liquidity problems
before the instruments were realized and funds were available for se
at a central point of the business.
• Keeping a track of the instruments issues/ received for providing
funds/ investing the funds, and reconciliation of such instruments
issued/ realized was a very laborious task.
Introduction
• Obtaining the duplicates , in place of instruments lost in postal transit was a
cumbersome and time cosuming process.
• As stated above, unwieldy reconciliation of accounts also was prone to
possible irregularities and disputes between the drawer and payee of such
instruments.
• Hence in order to overcome the above problems and deficiencies, the RBI
has introduced several E-Bankng initiatives to move away from the paper-
based payments and settlements system to paperless payment and
settlement system .
• They are ECS (credit), ECS (Debit), EFT, NEFT, RTGS , Internet Banking, Mobile
Banking, Speed Clearing, Cheque Truncation etc.
E- Banking for Payments and Settlements

• Electronic Clearing System (ECS –Credit) :

• ECS is a unique system whereby an entity/company will be in a position
to make payments(like dividends, interest payments, salary, perquisites,
pensions, and other repetitive payments ) from its Bank account to a
number of recipients by direct credit to their bank accounts and thus
avoiding issue of thousands of physical cheques, dividend warrants.
• For this purpose, the company/ entity making the payment has to have
the Bank account details of the individual beneficiaries . The payment
are effected through a sponsor bank of the Company making the
payment
ECS -Credits

• Such Bank has to ensure that there are enough funds in its account on
the settlement day to offset the total amount for which the payment
is being made for that particular settlement, sponsor bank is generally
the Bank with whom the company maintains its account
Electronic Clearing System ( Debit)

• ECS (debit) is another unique system whereby an entity/ company will

receive hundreds of bill payments directly from the bank accounts of
their customers instead of making (say) electricity bill payment
through cash or by means of cheque, or EMI payments n case of
housing/ vehicle loan accounts of borrower customers .
• Both ECS(credit) and EC(Debit) apart from helping reduce use of
physical cash and cheques will also give the users a comfort as to the
certainty of cash on the specified date and also reduction of
overheads costs in collection/ payments.
ECS(Credit) and ECS(Debit)

Procedure :
• For this the customer has to give an application to the utility company( provided
the company has adopted for the ECS-Debit scheme),providing details of bank
account, Bank name, a/c no., IFSC code etc., from which the monthly/ bi-
monthly amounts can be directly deducted for such bill payments.
• Such details have to be authenticated by the bank of the customer who opts for
making the payments through this mode.
• Once this option s given in writing on the prescribed application form, duly
signed by the customer, the utility company would advise the consumer’s bank
to debit the bill amount to customer’s account on the due date of the bill and
transfer the amount to the Company’s own account.
ECS(credit) ECS(Debit)

• This is done by crediting the account to of the sponsor bank which

again is generally the bank with whom the company receiving the
payments maintains the account with .
• The actual bill would be sent to the consumer to his mobile or by e
mail , unless specifically requested by the customer for receiving the
bill in the physical mode
ECS –System’s advantages
• The ECS system will redress the difficulties faced in the paper based
formats , which are as follows:
• Printing, despatch and reconciliation require expensive administrative
machinery.
• Bunching of a large number of instruments in clearing results in
operational bottlenecks and pressures on the cheque processing
system.
• Chances of loss of instruments in transit and their fraudulent
encashment.
ECS System’s Advantages
• The Customer has also to keep a track of the receipt/ non-receipt of the
instruments and make efforts to deposit such instruments in his bank
account on receipt of the same.
• Banks find processing of such a large volume of instruments not only error
prone but also cost and time consuming.
• The despatch of such large number of instruments to recipients also entails
huge pressure on the despatch department, resulting postage costs and
pressure on the Postal Department of delivery of such instruments to the
recipients .
• ECS system has now been expanded by including National Electronic
Clearing System (NECS)
National Electronic Funds Transfer System (NEFT)

• RBI as part of the initiatives aimed at quick movement of funds in a paperless

mode had introduced the Electronic Funds Transfer System (EFT) in the year
1996.
• The EFT system covers all the branches of Commercial Banks at large Metro and
Urban Centres of India . Funds transfer is possible from any branch of these banks
at these centres to another branch of any bank at these centres both INTER CITY
and INTRA CITY .
• EFT is a system whereby anyone, who wants to make payment to another
person/ entity can approach his bank and give written instructions on the
prescribed by giving his bank account details and the details of the bank, bank
account number, IFSC code of the beneficiary to whom the funds are requested
by the customer to transfer such amount of funds .
NECS (National Electonic Clearing System)
• The Customer has to authorise his bank /instruct the bank to debit
his account for transferring funds to the beneficiary/ receiver’s
account with the same bank or another bank.
• The facility is available for transfer of funds for individual transactions
up to Rs 2 lakhs per transaction under the NEFT system .
• If the customer(ie remitting bank) transmits the funds transfer
message to RBI so as to hit the first settlement at 12 Noon, the
receiving bank’s account is credited on the same day (day 1) itself.
• If the money sent is included in subsequent settlement ie from 2 to 4
PM, the beneficiary’s account gets credited on the next day (day 2)
NECS(National Electronic Clearing System)

• The facility can be availed of by the customer, even if the branch from
where customer is sending the amount is not fully computerized( say
Rural , small branch)
• Almost every district in the country is enabled with the facility of
electronics fund transfer with the tie up of SBI and the Central Bank,
RBI
National Electronic Funds Transfer(NEFT) System

• The NEFT system is an electronic clearing system and it went live from Nov.
21, 2005. with one settlement at 12 Noon every day . Initially NEFT started
with 8 major banks and progressively it has increased to cover all the banks
which were participating in the Special Electronic Funds Transfer (SEFT)
clearing .
• The Service Centres/ Branches of each bank forwards the same to the local
RBI (National Clearing Cell, Mumbai) to be included for the next available
settlement . Presently NEFT is settled in six batches at 09.30, 10.30, 12.00,
1300, 1500, 1600 hours on week days and 09.30, 10.30 and 12.00 hours on
Saturdays . The NEFT system for electronic transfer of funds , is now available
at all major centres in India. The RBI is promoting the system in order to
ensure increased coverage including at small rural branches
Real Time Gross Settlement (RTGS)

• In a RTGS system, both processing and final settlement of funds transfer instructions
can take place simultaneously(ie in real time basis) . RTGS systems are typically
electronic systems , which transmit and process information in real time .
• As it is a gross settlement system, transfers are settled individually, that is without
netting debits against credits . As it is a real time settlement system, the system
effects final settlement continuously rather than periodically at pre specified times
provided that a sending bank has sufficient covering balances or credits .
• Moreover, this settlement process is based on the real time transfer of Central Bank
money.
• An RTGS system, can thus be chracterized as a funds transfer system that is able to
provide continuous intra-day finality for individual transfers
Salient Features of the Realt Time Gross Settlement (RTGS)
system
• RTGS supports following type of transactions ;
• Inter-Institutional transactions of very high value.
• Customer transactions.
• Delivery vs. Payment transactions.
• Own Account Transactions.
• Multilateral Net Settlement Batches (MNSB) transactions
• Payments are settled transaction by transaction for high value and
retail payments
Salient Features of RTGS System

• Settlement of Funds is Final and Irrevocable .

• Settlement is done on a real time basis and the funds settled can be
further used immediately.
• It is a fully secure system which uses digital signatures and Public Key
Infrastructure (PKI) based encryption for safe and secure message
transmission.
• There is a provision for intra-day collaterized liquidity support for
member banks to smoothen the temporary mismatches of fund flows
Internet Banking and Mobile Banking

• Both Internet and Mobile Banking net work can be used to

supplement electronic funds transfer systems by integrating them
with the end user equipments .

• Internet Banking facility is being used by customers now as an

extended counter of a bank for transfer and receipt of funds through
secured net works using protected user ids and unique password .
Mobile Banking

• Mobile Banking is now very widely used as there are over 900 million
users across various centres in India. This has encouraged banks and non
-banks to develop payment services for their customers .
• Mobile payments are being set up through Voice access, SMS or WAP.
• The technology provides access to initiate and authenticate transactions
from existing payment means such as bank accounts or payment cards
(Debit cum ATM s and Credit Cards) .
• Another arrangement allows customers to pay using the prepaid value
stored on the mobile phone or to pay ex post., where payments for good/
services are placed as additional items on the customer’s phone bill.
Mobile Banking

• PIN is used as authentication method .

• Since the number of mobile users is increasing at a very fast rate, small
value retail payments can be done through mobile and banks in India
have started tapping the potential of this mode .
• Digital mode of payments are secure, convenient , cost and time effective
for the customers and save huge amount of costs for the banks. Of
course, the necessary safe guards related to having a complex pass-
word ,secrecy of the PIN, Password, CVV for the card payments, exercising
care and precautions for NOT clicking on suspicious links, websites etc
have to be strictly observed by the customers very scrupulously.
Speed Clearing and Cheque Truncation System

• RBI is taking steps to reduce the settlement time in case of paper based
systems also . Speed clearing and Cheque Truncation besides Magnetic
Ink Character Recognition (MICR) clearing are some of the examples.
• SPEED CLEARING :
Speed clearing refers to collection of outstation cheques through
the local clearing.
It facilitates collection of cheques drawn on outstation Core Banking
enabled branches of banks , if they have a networked branch locally.
SPEED CLEARING

• The concept of Speed Clearing combines the advantages of MICR

clearing with that of the Core Banking Solution (CBS)
• Banks as part of their normal banking operations undertake the
collection of both local and outstation cheques deposited by the
customers .
• In order to facilitate faster collection of both local and outstation
cheques, the RBI has started a special clearing called clearing by
leveraging the Core Banking Solutions implemented by Banks .
• In CBS environment, cheques can be paid at any location obviating the
need for their physical movement to the Drawee branch
SPEED CLEARING

• At Major Local Cheque Clearing Centres, where cheques are

processed at the Clearing House on mechanised sorters, using
Magnetic Ink Character Recognition (MICR) technology and bans who
have networked their branches by implementing Core Banking
Solutions (CBS), are extending Speed Clearing Facility.
• Cheques drawn on outstation CBS branches of a Drawee bank can be
processed in the Local Clearing under the Speed Clearing
arrangement if the Drawee bank has a branch presence at the local
centre with CBS facility.
SPEED CLEARING

• As on date, the local cheques are presented on T+1 working day basis
and customers get the benefit of credit to their bank account and
withdrawal of funds on T+1 or Y+2 basis. T denotes the transaction
day, viz., the date of presentation of Cheque at the Clearing House .
• So that the outstation cheques under Speed Clearing will also be paid
on 2nd day or 3rd day from the date of presenting the cheque for
collection .
• (Source : FAQ s of RBI on Speed Clearing)
CHEQUE TRUNCATION

• Cheque truncation is a system of cheque clearing and settlement

between banks based on electronic data/ cheque images or both
without physical exchange of instruments .
• Cheque truncation system is operational in Delhi and major centres
and is progressively being extended to all other big centres of India.
• Benefits of Cheque Truncation :
• The bank customers would get their cheques realised faster on the
same day in case of local clearing and on the next day in case of
inter- city clearing .
CHEQUE TRUNCATION

• Straight through processing of cheques and automated payment processing

have enabled faster realization of cheques as also significant reduction in
costs for the customers and the Banks.
• It is also now possible for the Banks to offer innovative products and
services like “ CASH MANAGEMENT SERVICES ” for the Corporates and Mid
Corporates .
• The Banks have additional advantage of reduced workload of reconciliation
and prevention of frauds .
• The beginnings made by the RBI in the 90 s and continuous encouragement
to Banks and customers is showing very good progress in allthe areas of
Electronic Payment and Settlement Systems
 Regulatory and Latest Guidelines

• It is pertinent to point out that RBI has mandated that the cheques should be clearly and precisely written by the customers.
• No cutting, overwriting on any cheques is permitted and such cheques are summarily rejected and are not accepted by banks
for clearance.
• Cheques of large amounts , Rs 2 Lakhs require confirmation by the customers of the bank who have issued such cheques to
their drawee branch, before they are presented. This has been done by the RBI to safeguard the interest of the customers.
• As from August 2021, the Cheques are cleared on 24x7 basis even on holidays / Sundays . As such , the customers must ensure
that they have adequate funds to be able to honour their cheques.
• The Cheques , when presented, must not only provide adequate funds to honour the cheques of the customers, but must also
leave and fulfil the Minimum Balance Requirements of the Bank as applicable., to prevent application of any penalty besides
return of cheques.
• ECS (Debit), wherever authorised by the customers to the Bank, for automatic debit of their EMIs for loan repayment , Utility
Bill Payments etc, must have Sufficient Balance to ensure honour of such ECS Debits , otherwise they are treated as at par with
dishonour of cheques and can be subject matter of action by the payee / beneficiary of such a cheque , under Section 138 of
the Negotiable Instrument Act.
• ECS(Debits) are also accepted by the Banks for investments by customers in Mutual Funds Schemes under Systematic
Investment Plans (SIP ) of Mutual Funds .
 Conclusion

Q&A

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