Banks have no responsibility to match perfectly the account number with the beneficiary name as mentioned by the remitter. This makes the customer run from pillar to post for grievance redressal. Why is the RBI so unconcerned?
National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement System (RTGS) are great technological products for remittance of funds. However, both require considerable improvement in implementation to make them not only customer friendly but a safe and secure remittance system that can sustain the trust and confidence of the using public. Now that the Reserve Bank of India (RBI) is in the verge of granting many more licences to set up what are called specialized “payment banks” exclusively catering to the remittance business, it is all the more necessary to upgrade the prevailing systems with built in safeguards. This would ensure that customers are not only safe but feel safe in using these modern systems in preference to the age old systems of demand drafts (DDs), money transfers (MTs) and telegraphic transfers (TTs), which are slowly but surely being phased out by the banks.
The drawbacks in the NEFT/RTGS remittance systems at present are two fold; one from the remitters’ angle and the other from the beneficiaries’ angle.
The problems encountered by the beneficiaries of remittances through NEFT have been well covered and explained in the following two articles published in Moneylife digital newsletter on 08th and 21 January 2015.
These problems enumerated in the aforesaid two articles can be summarized as under:
1. Banks, who receive the remittance, do not furnish full information of the remitter when they credit the amount to beneficiary’s account. This can give rise to questions being raised by tax authorities who could even construe these credits as income in the hands of the beneficiaries and taxed accordingly. This can put the receiver in a dilemma for no fault of his.
2. Apart from the name of the remitter, the full address of the remitter and the purpose of remittance should also be furnished for the use of the receiver. Receiving funds from unknown remitters becomes an even bigger issue for NGOs, who need to give a receipt as well as income tax (I-T) exemption certificate, wherever applicable. In the absence of this information, it will put both the remitter and the beneficiary in a bind.
3. A number of businesses that accept online payments for sale of products, subscriptions, memberships etc. do require full information about the remitter and the purpose of remittance without which, they are left vulnerable to harassment by different tax authorities as well as by their auditors who may not give a clean report in their balance sheet.
4. Another issue with NEFT fund transfer is the delay. According to RBI policy, banks need to afford credits to beneficiary accounts or return transactions (un-credited for whatever reason) to the originating / sponsor bank within the prescribed timeline. Banks have been asked to ensure that in case of delayed credits or delayed returns, the destination bank shall pay compensation at current RBI LAF Repo Rate plus 2% for the period of delay. RBI has also instructed banks that compensation as stated above is paid suo-moto to the customer without necessitating a request for the same by the customer. Whether this is complied with by banks is anybody’s guess.
What are the problems encountered by remitters?
Every remitter is anxious to ensure that the remittance reaches the right beneficiary to whom it is intended at the earliest possible time. But if it does not get credited to the right beneficiary for whatever reasons, the remitter will have to face the music and run after the banks to recover the money from the wrongful recipient of the amount.
The chances of money going into the wrong account are again two fold. If the remitter mentions the beneficiary’s name correctly, but inadvertently mentions wrong account number of the beneficiary, the amount will be credited to the wrong account mentioned therein without matching name of the beneficiary.
Secondly, if the remitting bank by mistake mentions the wrong account number while transmitting the message to the receiving bank, here again, the money will get credited to the wrong account, as the receiving bank is not required to match the name of the account holder mentioned in the remittance instructions.
This is because, banks have no responsibility to perfectly match the account number with the name of the beneficiary as mentioned by the remitter as per the guidelines of RBI reading as under:
“Responsibility to provide correct inputs in the payment instructions, particularly the beneficiary account number information, rests with the remitter / originator. While the beneficiary’s name shall be compulsorily mentioned in the instruction request, and carried as part of the funds transfer message, reliance will be only on the account number for the purpose of affording credit”
The onus of furnishing the correct account number, no doubt, rests with the remitter, but unfortunately, there is no enabling environment to ensure that the remitter does not commit any mistakes while mentioning the account number in the application for remittance. This is because; there is no standardization in the numbering of bank accounts as prevalent in mobile telephone numbers.
What are the improvements required to strengthen the NEFT system?
The first and the foremost improvement required is to ensure that the amount reaches the intended beneficiary only at all costs. To enable this, the most important requirement is to standardize account numbers across all banks which will reduce the chances of making mistakes by the remitter and the remitting bank as well.
All mobile numbers are of 10 digits all over the country irrespective of the operator, making it user friendly and easy to record wherever required. But the numbers of bank accounts vary from 10 digits to 15 digits, as different banks follow different system of
allotting account number for accounts opened with them. For instance, SBI has 11 digits in their account numbers; where as ICICI Bank has 12 digits, Canara Bank has 13 digits, Indian Overseas Bank has 15 digits, while Citibank has only 10 digits.
If nearly 900 million mobile numbers can be restricted to 10 digits, it is certainly possible to restrict the bank accounts to a maximum of 10 or 12 digits and make it uniformly applicable for all banks in the country. This will considerably bring down chances of making a mistake while writing down the account number by the remitters.
This is, however, not to say that the name of the account holder should not be considered while affording credit. In an environment of technological improvements taking place every day, there is no reason why it is not possible to develop suitable software to perfectly match the account number with the name of the account holders as specified by the remitter, so that the chances of wrong credit are totally avoided.
If customers are properly guided to provide both the account numbers and name of the beneficiary correctly, they would certainly comply with this requirement in their own interest, to ensure that the remittance goes through without any hitch. RBI should certainly ask the banks to find out plausible solution to this problem so that the entire system is perfected to provide safe and secure remittance system to the banking public.
There are a number of instances, where the amounts have been credited to wrong beneficiaries without matching name of the beneficiary, due to wrong account numbers either given by the remitters or wrongly communicated by the remitting bank, which has resulted in considerable inconvenience and, in some cases, even loss of money to the customer or the remitting bank. RBI should make a thorough study of such cases and work out appropriate solution to mitigate such hardships to the remitters.
RBI has, however, directed the banks, that notwithstanding its instructions, in cases where it is found that credits have been afforded to a wrong account, banks need to establish a robust, transparent and quick grievance redressal mechanism to reverse such credits and set right the mistake and / or return the transaction to the originating bank.
But it would be much better to work out a practical solution to this problem than to make the banks and the customers suffer for all times to come.
Make ‘purpose of remittance’ mandatory for all domestic remittances:
The second improvement required is to standardize the application form for making money transfers as each bank follows a different format of varying sizes, making it most cumbersome even to fill up such simple forms of daily use. Therefore, there is an urgent need to standardize all banking forms, just like cheque books, to make life easier for the banking public. The most important information required to be included in the
remittance advice is the purpose of remittance, which is very essential for the beneficiary to correctly account for the money received.
RBI has made it mandatory for inward remittances received from abroad to include the purpose of remittance without which, the amount does not get credited to the beneficiary’s account. Similar guidelines should be issued by RBI making it compulsory to include these details in all the domestic transfers affected through NEFT and RTGS. These details should form part and parcel of the information required to be conveyed to the beneficiary along with the name and address of the remitter. The purpose of remittance can be family maintenance, a donation, a subscription, repayment of loan, payment of a bill due or simply a gift. But whatever is the purpose let it be spelt out clearly for the benefit of both the remitter and the beneficiary which will make the entire system hassle free for both the parties.
With more than 10 crores of people mainly from the rural areas and with lower literary levels just included in the banking fold through the Prime Minister’s Jan Dhan Yojana, the need of the hour is to make banking simpler, easier and safer for the large majority of our people by standardizing all banking operations, systems and procedures across all banks, which will go a long way in helping them to remain within the banking fold.
Let not NEFT turn into a never ending financial trouble for the innocent, hapless and already harassed common people of our country.
(The author is a banking analyst and he writes for Moneylife under a pen name ‘Gurpur