Payment Systems in India: NEFT, RTGS and IMPS Notes

The correct answer is C, two lakh rupees. 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. Option A is wrong because a transfer of ten thousand rupees would go through NEFT, IMPS or UPI, none of which has a minimum. Option B is wrong because one lakh rupees is below the floor and would be refused by the system. Option D is wrong because five lakh rupees is well above the floor and can certainly be sent by RTGS; it is the figure to which the Reserve Bank raised the per transaction ceiling for IMPS in 2021, which is why it appears as a distractor here. Fix the pairing in memory: RTGS has a minimum and no maximum, while NEFT and IMPS have no minimum at all.

The correct answer is A, National Electronic Funds Transfer. 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. Options B, C and D are wrong because they are invented expansions of the same four letters, and none of them is used in any Reserve Bank circular; papers build such options because a candidate who has only heard the abbreviation spoken will not have seen it written out. Remember the three expansions together, since they are often asked in one question: RTGS is Real Time Gross Settlement, NEFT is National Electronic Funds Transfer and IMPS is Immediate Payment Service.

The correct answer is B, RTGS. 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. Settlement is final and irrevocable once done, which is what a large value payment needs. Option A is wrong because NEFT works on deferred net settlement, collecting instructions and settling the net position in half hourly batches. Option C is wrong because NACH is a bulk clearing system for repeated credits and debits such as salary, pension, subsidy and instalments, which is the opposite of transaction by transaction settlement. Option D is wrong because the Cheque Truncation System clears cheques in sessions by sending their images, again in batches. Gross with RTGS and net with NEFT is the distinction papers test most often.

The correct answer is C, the National Payments Corporation of India. 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. Option A is wrong because the Reserve Bank operates RTGS and NEFT but not IMPS, although it regulates every payment system under the Payment and Settlement Systems Act of 2007. Option B is wrong because the State Bank of India is a member bank of the system, not its operator. Option D is wrong because the Indian Banks Association, along with the Reserve Bank, promoted the National Payments Corporation of India but does not run the service itself. Group the products by owner: RTGS and NEFT with the Reserve Bank, and IMPS, UPI, RuPay, NACH, AEPS, BBPS and FASTag with the National Payments Corporation of India.

The correct answer is B, on a deferred net basis, in half hourly batches. 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. Option A is wrong because settling each instruction the moment it arrives is the method of RTGS, not NEFT. Option C is wrong because a single settlement at the close of the day was the practice of older clearing arrangements and was never how NEFT worked. Option D is wrong because settlement between the banks is not made to wait for a confirmation from the beneficiary bank, although the credit to the customer's account does follow the settlement. Net settlement in batches is the phrase to carry into the hall.

The correct answer is C, eleven. 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. It is required for RTGS, NEFT and for an IMPS transfer made with an account number. Option A is wrong because nine is the length of the MICR code printed on a cheque, which is made of three digits each for the city, the bank and the branch. Option B is wrong because no Indian banking code has ten characters. Option D is wrong because twelve is the length of an Aadhaar number, which is used in the Aadhaar Enabled Payment System but is not a bank branch code. Papers mix IFSC, MICR and MMID in one question, so learn eleven, nine and seven together.

The correct answer is B, the Payment and Settlement Systems Act, 2007. 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. Option A is wrong because the Banking Regulation Act of 1949 governs the licensing, management and business of banking companies. Option C is wrong because the Negotiable Instruments Act of 1881 deals with cheques, bills of exchange and promissory notes, and it is under its section 138 that a dishonoured cheque becomes an offence. Option D is wrong because the Reserve Bank of India Act of 1934 established the Reserve Bank itself and deals with currency and monetary matters. The year 2007 for payments and 1881 for cheques are the two dates worth fixing.

The correct answer is C, 2016. 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. Option A is wrong because 2010 is the year IMPS itself was launched. Option B is wrong because 2012 is the year the RuPay card network was launched by the same organisation. Option D is wrong because 2019 is the year in which NEFT was made available on all days of the year and the Reserve Bank did away with its own charges on RTGS and NEFT. A short timeline is worth memorising: the corporation in 2008, IMPS in 2010, RuPay in 2012, UPI in 2016, NEFT round the clock in 2019 and RTGS round the clock in 2020.

The correct answer is C, nine. 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. Option A is wrong because six digits make up only the branch part of an IFSC, not a code by itself. Option B is wrong because seven is the length of the MMID used in IMPS, whose first four digits identify the bank. Option D is wrong because eleven is the length of the IFSC, which is alphanumeric rather than numeric. Note also that with the Cheque Truncation System the image of the cheque now travels for clearing rather than the paper, although the MICR line is still read from that image.

The correct answer is C, NACH and the National Payments Corporation of India. 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. Option A is wrong because RTGS is operated by the Reserve Bank of India itself. Option B is wrong because NEFT is also operated by the Reserve Bank; the Indian Banks Association only helped promote the corporation and runs no payment system of its own. Option D is wrong because UPI belongs to the National Payments Corporation of India, not to the Reserve Bank, although the Reserve Bank regulates it like every other system. The safe rule is that the Reserve Bank runs exactly two of the systems named in this topic, RTGS and NEFT, and the corporation runs the rest.