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Introduction to Banking

Different Types of Money Remittance Services Offered By Banks

One of the main functions of banks is to provide remittance services to customers. Remittance refers to the act of transferring money from one place to another. This includes both domestic as well as international transfers. 

 

Domestic Transfers

 

When money is transferred from one account to another where both the accounts are located in the same country, then it is referred to as a domestic transfer. Traditionally, this used to be done through Demand Drafts, Banker's Cheques, and Money Orders. The banking world has gone online for decades now and hence physical cheques are slowly becoming obsolete. Today, money is transferred through modes such as RTGS, NEFT, and IMPS. 

 

  • Demand Drafts and Bankers Cheques: These are physical cheques issued by banks in favor of a specific person where the bank agrees to pay a certain sum of money on behalf of its customer. While preparing these cheques, the required sum of money (as mentioned in the demand draft/banker's cheque) is transferred from the customer's account to a designated account of the bank. The recipient can deposit the cheque in his/her account and the money is transferred. When these types of cheques are issued to a recipient account in the same city, then it is called a Banker's Cheque. In case the recipient account is in a different city, then it is called a Demand Draft
  • RTGS and NEFT: Real-Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) are electronic payment systems that enable banks to transfer money from one account to another without using any physical modes. While they can be done by submitting physical forms in bank branches, the best way to do RTGS and NEFT is by using net banking. The best part is that the fund is transferred within 30 minutes of making a request to the bank. When the transfer amount is less than ₹2 Lakhs, then NEFT is used, and if the transfer amount is ₹2 Lakhs and above, then RTGS is used. Earlier, RTGS and NEFT services were available only during banking hours and during bank working days. But since Dec 2019, NEFT & RTGS services are available 24x7x365 as instructed by RBI. 
    While performing NEFT or RTGS, customers need to quote the IFSC Code or the Indian Financial System Code of the recipient’s bank branch. It is an 11 digit code that identifies the right branch where the bank account is located. Every bank branch in India has a unique IFSC Code. For example, the IFSC Code of Kotak Mahindra Bank Nariman Point is KKBK0000958.
  • IMPS: Immediate Payment Service(IMPS) enables a customer to transfer funds instantly to any account within India using net banking or mobile banking. This service is available 24 X 7, throughout the year including bank holidays. The recipient account has to be in a bank that participates in IMPS. As of 2018, 53 commercial banks and 101 rural, district, urban, and cooperative banks participate in IMPS. A customer can transfer up to ₹2 Lakhs per transaction using IMPS. 

International Transfers

Customers may need to transfer money to bank accounts located outside a country. These are called international transfers and can be done in two ways - Foreign Currency Demand Drafts and Remittances. Since these transactions are done in foreign currencies, an exchange rate is involved in this case. Each bank issues its own exchange rate every day which is based on the applicable Inter-Bank Rate of that day. 

  • Foreign Currency Demand Drafts: Commonly referred to as FCDDs, these are the foreign currency counterparts of demand drafts mentioned above. They are issued in a foreign currency such as the US Dollar or Euro and are payable to a customer's account located in a different country.
  • Remittance: This is similar to RTGS or NEFT, however, the recipient is located in a foreign country. The transfer is done using SWIFT - Society for Worldwide Interbank Financial Telecommunication. SWIFT transactions can be completed online or through a bank branch. Each branch of the bank has a SWIFT code which needs to be mentioned to route the money to the right branch of the bank. The SWIFT code of the recipient’s bank branch has to be mentioned during each transfer for routing the money to the right account. 

Since these are foreign transactions, the bank might ask for documents related to transactions such as the purpose of transferring money, passport, and others. For example, Kotak Mahindra Bank requests its customers to sign a form (A2) in case the cumulative amount remitted through an account in a financial year exceeds USD 25,000. 

 

Each bank has a limit to the maximum amount of money that can be transferred during each transaction. Sometimes, banks can have a limit to the minimum amount that can be remitted as well. For example, Kotak Mahindra Bank has a robust remittance system called Click2Remit where the minimum amount per transaction is USD 100 and the maximum amount is capped at USD 5000 per transaction, USD 15,000 per week, and USD 20,000 per month (subject to 12 transactions per month).

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