Payment Systems in India: NEFT, RTGS and IMPS Notes
Banking awareness notes on NEFT, RTGS and IMPS: operators, settlement methods, limits, the 2007 Act, the NPCI products and the IFSC, MICR and MMID codes.
By GK24 Editorial Team· Published · 4 min read
Every rupee that moves from one bank account to another in India travels through a payment system, and banking awareness papers test three of them by name: RTGS, NEFT and IMPS. The three differ in who runs them, how quickly they settle, and what they cost the customer. Learn them as a comparison rather than one by one, because almost every question is set by swapping one feature of one system for another.
The legal and institutional framework
The Payment and Settlement Systems Act of 2007 made the Reserve Bank of India the authority for regulating and supervising payment systems, and no payment system may be operated in India without its authorisation. The Board for Regulation and Supervision of Payment and Settlement Systems works under the Reserve Bank for this purpose. Alongside it stands the National Payments Corporation of India, set up in 2008 as an umbrella organisation for retail payments, promoted by the Reserve Bank and the Indian Banks Association and registered as a not for profit company. RTGS and NEFT are operated by the Reserve Bank itself; IMPS, UPI, RuPay, NACH, AEPS, BBPS and FASTag are all products of the National Payments Corporation of India.
The three systems compared
| Feature | RTGS | NEFT | IMPS |
|---|---|---|---|
| Full form | Real Time Gross Settlement | National Electronic Funds Transfer | Immediate Payment Service |
| Operated by | Reserve Bank of India | Reserve Bank of India | National Payments Corporation of India |
| Settlement | Transaction by transaction, in real time | Deferred net settlement, in half hourly batches | Immediate, round the clock |
| Minimum amount | Two lakh rupees | No minimum | No minimum |
| Availability | All days of the year since December 2020 | All days of the year since December 2019 | All days of the year since it began |
| Identifiers used | Account number and IFSC | Account number and IFSC | Account number and IFSC, or mobile number and MMID |
What gross and net settlement mean
Gross settlement means that each instruction is settled by itself, one at a time, the moment it is processed; that is why RTGS is used for large payments, where waiting even an hour carries a risk. Net settlement means that the system collects instructions for a period, sets off what banks owe each other and settles only the difference; NEFT works this way, in half hourly batches through the day, which is efficient for a large number of small payments. Real time means the settlement is final and irrevocable as soon as it is done, and this finality is the reason the Reserve Bank keeps RTGS for amounts of two lakh rupees and above, with no upper limit set by the Reserve Bank itself.
IMPS, UPI and the retail systems
IMPS was launched by the National Payments Corporation of India in 2010 and was the first Indian system to offer instant interbank transfer at any hour of any day, including holidays, long before RTGS and NEFT were made available round the clock. It can be used through mobile banking, internet banking and ATMs. A customer may send money either with the beneficiary's account number and IFSC or with the beneficiary's mobile number and a seven digit Mobile Money Identifier issued by the bank. The Reserve Bank raised the per transaction ceiling for IMPS to five lakh rupees in 2021. The Unified Payments Interface, launched in 2016, builds on the same immediate settlement rails and adds a virtual payment address so that a payer need not know the account number at all. Other systems worth naming are NACH for bulk credits such as salary and subsidy, AEPS for withdrawals authenticated by Aadhaar and fingerprint, the Bharat Bill Payment System for utility bills, the National Electronic Toll Collection system behind FASTag, and the Cheque Truncation System, under which the image of a cheque rather than the paper itself moves for clearing.
The codes a candidate must know
- IFSC, the Indian Financial System Code, has eleven characters: the first four letters identify the bank, the fifth is always zero and is kept for future use, and the last six identify the branch. It is used in RTGS, NEFT and IMPS.
- MICR, the Magnetic Ink Character Recognition code printed at the foot of a cheque, has nine digits: three for the city, three for the bank and three for the branch.
- MMID, the Mobile Money Identifier used in IMPS, has seven digits, of which the first four identify the bank.
- SWIFT codes, of eight or eleven characters, are used for payments across borders, not within India.
On charges, the Reserve Bank stopped levying its own charges on banks for RTGS and NEFT in July 2019 and asked banks to pass the benefit on, and banks were directed not to charge savings account holders for NEFT transfers made online. This is a favourite question because candidates assume a high value transfer must cost more.
Exam Point of View
Banking papers ask this topic as a comparison. The most frequent question is the minimum for RTGS, where two lakh rupees is the answer and one lakh the trap. Next come the expansions of the three abbreviations, asked together in one question. Then the operator, where the safe rule is that the Reserve Bank runs only RTGS and NEFT and the National Payments Corporation of India runs everything else named here. Settlement questions turn on the words gross and net: gross means one by one in real time, net means batched and set off. The codes are asked as a set, so learn eleven for IFSC, nine for MICR and seven for MMID together. Years are worth carrying too: the Act in 2007, the corporation in 2008, IMPS in 2010, RuPay in 2012, UPI in 2016, round the clock NEFT in 2019 and round the clock RTGS in 2020.
Important Facts
| RTGS full form | Real Time Gross Settlement |
|---|---|
| NEFT full form | National Electronic Funds Transfer |
| IMPS full form | Immediate Payment Service |
| RTGS minimum | Two lakh rupees; no ceiling set by the Reserve Bank |
| NEFT settlement | Deferred net settlement in half hourly batches |
| Operator of RTGS and NEFT | Reserve Bank of India |
| Operator of IMPS and UPI | National Payments Corporation of India |
| Governing Act | Payment and Settlement Systems Act, 2007 |
| NPCI set up | 2008, promoted by the RBI and the Indian Banks Association |
| IFSC | Eleven characters; four for the bank, a zero, six for the branch |
| MICR | Nine digits; three each for city, bank and branch |
| MMID | Seven digits, used with a mobile number in IMPS |
| UPI launched | 2016 |
Practice MCQs on this topic
What is the minimum amount that can be remitted through RTGS?
- A.Ten thousand rupees
- B.One lakh rupees
- C.Two lakh rupees
- D.Five lakh rupees
Show answer
RTGS is meant for large value payments, and the Reserve Bank has fixed a floor of two lakh rupees for a remittance through it, while setting no ceiling of its own on the amount.
Read the full explanation →NEFT stands for:
- A.National Electronic Funds Transfer
- B.New Electronic Fund Transaction
- C.National Exchange of Funds and Transfers
- D.Net Electronic Financial Transfer
Show answer
NEFT is the nationwide system operated by the Reserve Bank of India for transferring funds from one bank account to another, settled on a deferred net basis in half hourly batches and available on all days of the year since December 2019.
Read the full explanation →In which payment system is each transaction settled individually and in real time, without being grouped into batches?
- A.NEFT
- B.RTGS
- C.NACH
- D.Cheque Truncation System
Show answer
The words in the name say it: real time means the instruction is carried out as it is received, and gross settlement means each instruction is settled by itself rather than set off against others.
Read the full explanation →The Immediate Payment Service (IMPS) is operated by:
- A.The Reserve Bank of India
- B.The State Bank of India
- C.The National Payments Corporation of India
- D.The Indian Banks Association
Show answer
IMPS was launched by that organisation in 2010 and was the first Indian system to offer interbank transfer instantly at any hour, including Sundays and holidays.
Read the full explanation →How is a NEFT transaction settled?
- A.Individually, the moment it is received
- B.On a deferred net basis, in half hourly batches
- C.Only at the end of the working day
- D.Only after the beneficiary bank confirms it
Show answer
NEFT holds instructions for a short period, works out what each bank owes the others on balance, and settles only that difference; the batches run every half hour through all twenty four hours, since the service was made available on all days of the year in December 2019.
Read the full explanation →An IFSC used for electronic funds transfer in India consists of how many characters?
- A.Nine
- B.Ten
- C.Eleven
- D.Twelve
Show answer
The Indian Financial System Code is made of eleven characters: the first four letters stand for the bank, the fifth is always the digit zero and is kept in reserve for future use, and the last six identify the particular branch.
Read the full explanation →Under which Act does the Reserve Bank of India regulate and supervise payment systems in the country?
- A.The Banking Regulation Act, 1949
- B.The Payment and Settlement Systems Act, 2007
- C.The Negotiable Instruments Act, 1881
- D.The Reserve Bank of India Act, 1934
Show answer
This Act designates the Reserve Bank as the authority for payment systems, makes its authorisation necessary before any payment system may be operated, and provides for the Board for Regulation and Supervision of Payment and Settlement Systems.
Read the full explanation →The Unified Payments Interface (UPI) was launched by the National Payments Corporation of India in which year?
- A.2010
- B.2012
- C.2016
- D.2019
Show answer
UPI was launched in 2016 and allows a customer to pay from a bank account using a virtual payment address, so that the account number and the IFSC need never be shared; it runs on the same immediate settlement arrangement that IMPS introduced.
Read the full explanation →The MICR code printed at the bottom of a cheque leaf consists of how many digits?
- A.Six
- B.Seven
- C.Nine
- D.Eleven
Show answer
The Magnetic Ink Character Recognition code has nine digits, of which the first three stand for the city, the next three for the bank and the last three for the branch; it is printed in magnetic ink so that a sorting machine can read it during cheque clearing.
Read the full explanation →Which of the following is the correct pairing of a payment system with the body that operates it?
- A.RTGS - National Payments Corporation of India
- B.NEFT - Indian Banks Association
- C.NACH - National Payments Corporation of India
- D.UPI - Reserve Bank of India
Show answer
The National Automated Clearing House is a bulk clearing service of that corporation, used for repeated credits such as salary, pension, dividend and subsidy and for repeated debits such as loan instalments and utility bills.
Read the full explanation →Frequently Asked Questions
What is the main difference between RTGS and NEFT?
RTGS settles each transaction on its own and in real time, so the transfer is final the moment it is processed, and it carries a minimum of two lakh rupees. NEFT collects instructions and settles the net position between banks in half hourly batches, and it has no minimum or maximum amount. In short, RTGS is for large value payments and NEFT for payments of any size.
Can money be sent through NEFT or RTGS on a Sunday or a bank holiday?
Yes. NEFT has been available on all days of the year since December 2019 and RTGS since December 2020, so both work on Sundays and holidays. Before that, IMPS was the only system that worked at all hours on all days, which is why it became popular for urgent small transfers.
Is there a charge for sending money through NEFT?
The Reserve Bank stopped levying its own charges on banks for RTGS and NEFT in July 2019 and asked banks to pass the benefit to customers, and banks were directed not to charge savings account holders for NEFT transfers made through internet or mobile banking. Charges may still apply for transfers made at a branch counter.
What is the difference between IMPS and UPI?
IMPS, launched in 2010, is the underlying service for instant interbank transfer, used with an account number and IFSC or with a mobile number and MMID. UPI, launched in 2016, is an interface built on the same immediate settlement arrangement that lets a customer pay from any of several accounts using a virtual payment address, without sharing account details.
What do the characters of an IFSC mean?
An IFSC has eleven characters. The first four letters identify the bank, the fifth character is always the digit zero and is kept for future use, and the last six characters identify the branch. It is required for RTGS and NEFT and for an IMPS transfer made using the account number.
Sources
- The Payment and Settlement Systems Act, 2007 — Ministry of Law and Justice, Government of India
- RTGS and NEFT system: frequently asked questions and operating guidelines — Reserve Bank of India
- Product overview: IMPS, UPI, NACH, AEPS and RuPay — National Payments Corporation of India
