The Reserve Bank of India, or the RBI[1], has made changes to incorporate foreign contribution regulation act-related transaction codes in the art RTGS and NEFT systems. The instructions were issued under Section 10 (2) along with Section 18 of the Payment and Settlement Systems Act of 2007. These changes have been made to incorporate the requirements of the Ministry of Home Affairs, the Government of India, regarding the details of the donor, like the name, address, country of origin currency amount and the reason for remittance that are required to be captured in the transactions.
The Ministry of Home Affairs has placed the onus on the State Bank of India to report all donor details, as mentioned above, of overseas donors to the Ministry of Home Affairs on a daily basis. Moreover, the FCRA 2010 states that foreign contributions are required to be received only in the FCRA account of the State Bank of India’s main branch in New Delhi. The contributions made to the FCRA account are directly obtained from foreign banks through swift and through Indian intermediary brands through the RTGS and NEFT systems. The RBI has instructed banks to incorporate requisite changes in their core banking and middleware solutions so as to capture necessary details before forwarding any foreign donations through RTGS and NEFT systems to SBI. The instructions shall come into effect from 15th March 2023 onwards.
What is FCRA?
Out of the numerous regulatory measures enacted by India to monitor the funding for domestic non-profit organizations, the Foreign Contribution Regulation Act or FCRA, is the most well-known. The FCRA was enacted in 1976 with the aim of regulating the utilization of foreign contributions by associations or individuals and to keep it consistent with the values of the sovereign, democratic republic that India is. The FCRA was enacted to maintain control over voluntary organizations that received foreign funding. It provides for registration requirements along with spending requirements on non-profit organizations of India receiving foreign donations. Only those organizations that work for definite social, cultural, educational, economic or religious programmes and are registered with the Home Ministry and also maintain a separate account listing all the donations received from foreigners after getting an audit by a practicing chartered accountant when submitting the same to the ministry annually. The above mentioned can legally accept foreign contributions as per FCRA. There are specific individuals and organizations that are debarred from receiving foreign contributions, like a judge, an editor or a publisher or a cartoonist of a registered newspaper, a candidate contesting an election, or a government servant or a political party.
The FCRA was amended significantly in 2010 and thereafter in 2020, which brought more additional restrictions on sub-granting amongst registered organizations under the FCRA, setting a cap on administrative spending and then control centralizing control of funding for FCRA with the Ministry of Home Affairs and the State Bank of India.
The FCRA aims to keep an eye on foreigners influencing Indian journalists, public servants candidates contesting for elections in politics for wrong activities are purposes that might prove that adversely affect public interest. Those found in violation of the provisions of the FCRA can face imprisonment, which can extend up to 5 years. The FCRA 2010 requires organizations to maintain a separate bank account for depositing foreign contributions received, and this account shall have no other funds deposited in it except for foreign donations. Obligations are placed on the banks to report to the requisite authority the amount of foreign remittances that have been received and other allied details like the source of the remittances and manner of receipt, among other things. Owing to this mandate under the FCRA, the RBI has incorporated changes to the NEFT and the RTGS system.
What is SWIFT?
Society for Worldwide Interbank Financial Telecommunications, or the SWIFT, is a fast and secure global messaging system that allows banks and various other financial institutions from around the globe to exchange encrypted information, namely instructions with respect to cross-border money transfers. SWIFT is based in Brussels, Belgium and was founded by 239 banks in 15 countries in 1973. It is a cooperative instituted with a view to creating a safe financial messaging system. As of now, SWIFT covers over 11,000 banks and many financial institutions in approximately 200 countries and territories, with it facilitating almost 38 million transactions daily. The SWIFT has over 11,000 members, and it includes banks, investment managers, dealers or brokers, clearing or exchange houses, insurance companies, investment managers, fund participants, corporates, and custodians, among others.
Banks that are on the SWIFT platform are able to reach more counter parties which also lends instant credibility to these banks. When funds are transferred using the SWIFT platform, the bank or the financial institution is required to pay an annual fee in order to access SWIFTnet and a minimum price for every FIN message sent. The banks, in turn, will charge a fee for the transfer from the customer, which will be more than the fee that the bank is charged by SWIFT.
It is imperative to understand that SWIFT does not actually transfer money between banks but instead transfers encrypted information between the paying bank and the receiving bank with respect to what has to be done. It is a virtual network that is reliable, secure and fast. The messaging system of SWIFT is called the SWIFTnet, and member countries can access it through permanent lease lines either through the cloud or permanent leased lines. To start with, every member of the SWIFT network is provided with a unique code that is either 11 or 8 alphanumeric characters long. This code was formally known as the business identifier code or BIC but colloquially called the SWIFT ID or the SWIFT code. The first four characters of the code stand for the name of the bank or the financial institution, the next two characters represent the specific country code, and the last two characters stand for the suffix of the business party. A branch identifier is an optional element which contains three characters and can be added to the BIC, and it is used to identify special services locations, units or departments of the party.
The secured messages through the SWIFTnet are exchanged over an encrypted and secure messaging system called FIN in a particular format in order to avoid errors and increase efficiency. The format is called MT103, and it contains all the requisite information about the transaction details of the sender and the receiver. Once the funds of the sender are properly connected with the account of the recipient, a series of instructions are initiated between the sending bank and any intermediary correspondence in between and the destination bank. The whole process is entirely automated to reduce the possibility of human error.
What is RTGS and NEFT System?
Let’s discuss about RTGS and NEFT System:
NEFT System
The NEFT stands for the National Electronic Funds Transfer, and it is a system that has been instituted and managed by the Reserve Bank of India to allow the domestic transfer of funds from one bank account to another bank account that is NEFT enabled. It is a payment system that allows one-to-one payments within India. NEFT is a system to transfer money online and is regulated by the RBI, and works as per the guidelines laid down by it. Neft is a one-to-one payment facility through which the transactions can be processed only between accounts in the banks that provide NEFT enabled services. In order to transfer funds through NEFT, users are required to add beneficiaries on the online banking portal of the requisite bank. Even though there are no limits on the amount of NEFT transactions, individual banks can set up their own transaction limits. There are no charges when any transactions are done either through mobile banking apps or Internet banking. However, if one chooses to conduct an NEFT transaction offline at one of the bank branches, there is an applicable fee on every such NEFT transaction. Depending on the amount being transferred, the fee varies from ₹2.5 to ₹25.
There are many benefits of transferring funds through the NEFT system, and these include the below mentioned:
- NEFT makes fund transfer between accounts of Banks that are NEFT enabled, convenient, easy and feasible.
- All the NEFT transactions are carried out online and don’t involve the interference of a 3rd party. However, one may choose to transfer funds through the NEFT system by going to the branch of the requisite bank.
- Due to the involvement of RBI, all+ new transactions are entirely secure and safe.
- Upon completion of the transaction, both the receiver and the sender of the funds get an instant notification about the same.
- NEFT neither requires cheques nor demand drafts to transfer money and hence is more economical.
- An account holder, whether a firm or corporate or individual, is allowed to carry out any new transactions. The only precondition is that the banks of the parties must be NEFT enabled.
- Other than transferring money, one can also use NEFT to pay credit card dues, loan instalments, and EMIs, among other things.
- There are no hidden charges involved while making an online transfer of funds using the NEFT system. Money is transferred within half hour from when the money was transferred and in a secure manner.
- The facility of money transfer under the NEFT system is available 24/7 and can be used throughout the year and even during the holidays.
RTGS System
RTGS, or real-time gross settlement, is a popular payment settlement system in India which can be used both online and offline to transfer money. The RTGS was launched by the Reserve Bank of India in 2004. It is a system which conducts continuous and real-time fund transfers. The term “real time” basically means that instructions are processed that very moment when it is received rather than after some delay. Moreover, the gross settlement means instructions with respect to fund transfer which shall be handled on instruction by instruction basis. RTGS money transfer system is unique and is primarily meant for transactions which have large volumes. The Reserve Bank of India has waived off any charges on all RTGS transactions with a view to boosting its popularity among the citizens of India.
To initiate an online money transfer through the RTGS system, there must be a minimum amount of ₹2, 00,000 or more. The complete form of the word RTGS debuts the precise nature of this facility. The words “real time” indicates that the transfer of funds and its interactions are processed the moment they are received. This helps in allowing the user to receive the benefits of an instant and continuous share of funds. While RTGS is one of the most used methods for the transfer of money, in some exceptional cases, an RTGS transfer may also fail. The main reason for the failure could be the typing of incorrect or non-existent account numbers or having insufficient funds in an account. In situations of online RTGS transfer, the loss may occur due to technical errors or server errors. However, if any such technical glitches occur where the transfer has failed but the money has been debited from the sender’s account, it is usually credited back to the account within an hour or a maximum of one working day.
Benefits and Features of Choosing RTGS
There are many benefits and features of the RTGS system, and they are as follows:
- It is a highly secure and safe way to transfer funds
- There is no upper limit for RTGS and transverse run through a bank branch
- One can also perform an accurate time transfer to the account of the beneficiary
- The transfer of funds can take place anytime and any day
- Demand draft or a physical cheque not required to transfer funds
- There is no likelihood of theft or loss of physical instruments and fraudulent encashment for beneficiaries.
- The Transaction can be initiated anywhere using internet banking
- Funds Can be transferred without any charges or fee
- RTGS transactions are legally backed
Necessary information to make an RTGS Transfer
The following information has to be provided while initiating a transfer under the RTGS system:
- Details Of remitting account
- Name And Branch of the beneficiary bank
- Name Of The Beneficiary customer
- Account Number of the beneficiary
- The Amount To be transferred
- IFSC number of the recipient bank
- Notes or remarks, if any.
Modes in Which Funds Can Be Transferred In the RTGS System
There are predominantly two modes in which funds can be transferred in the RTGS system:
- Internet Banking
Many of the banks offer the facility to add beneficiaries online using the facility of Internet banking. Upon successful addition of beneficiaries, the user can transfer fans to the intended beneficiary. Not only individuals but corporate account holders can also utilize internet banking to make RTGS transfers.
- Offline Transfer
Funds can be transferred through the RGA system by visiting the nearest branch of the bank and filling in the RTGS form in order to initiate a transfer of funds.
FCRA-Related Changes Made To RTGS and NEFT Systems
The changes made by the RBI to the RTGS and NEFT payments systems essentially incorporate the FCRA transaction code and donor details in both approaches. With respect to FCRA in RTGS and NEFT systems, the RBI has mandated that originating banks are required to follow the mandatory fields as is provided under the circle while remitting foreign donations to the FCRA account of the State Bank of India. The code to be used for the NEFT system shall be 41, and the court to be used for transactions through the RTGS system shall be FCRA. With respect to the donor details for the NEFT system and transaction details putting to the RTGS system, RBI has mandated that the operating banks shall be required to provide details of the donor in the formats given in the circular under the sender the remitter information of NEFT and the RMTLNF tag of the RTGS system. In the former, the details that are required to be given share include the donor’s address, the name of the donor for the purpose of the remittance, the country of the donor, along with the currency and the amount of the transaction.
Conclusion
The Reserve Bank of India has made changes to incorporate the foreign contribution regulation act-related transaction code in the art RTGS and NEFT systems. The instructions were issued under Section 10 (2) and Section 18 of the Payment and Settlement Systems Act of 2007. These changes have been made to incorporate the requirements of the Ministry of Home Affairs, the Government of India, regarding the details of the donor like the name, address, country of origin currency amount and the reason for remittance that is required to be captured in the transactions.
The Ministry of Home Affairs has placed the onus on the State Bank of India to report all donor details, as mentioned above, of overseas donors to the Ministry of Home Affairs on a daily basis. Moreover, the FCRA 2010 states that foreign contributions are required to be received only in the FCRA account of the State Bank of India’s main branch in New Delhi. The contributions made to the FCRA account are directly obtained from foreign banks through swift and through Indian intermediary brands through the RTGS and NEFT systems. The RBI has instructed banks to incorporate requisite changes in their core banking and middleware solutions so as to capture necessary details before forwarding any foreign donations through RTGS and NEFT systems to SBI. The instructions shall come into effect from 15th March 2023 onwards.
