Cash-based NEFT Remittance

Cash-based NEFT remittance refers to a facility under the National Electronic Funds Transfer system that allows individuals to transfer funds electronically without holding a bank account, by depositing cash at a bank branch. This mechanism plays a significant role in enhancing financial inclusion and facilitating secure, transparent fund transfers within the Indian banking and financial system. Operated and regulated by the Reserve Bank of India, NEFT has evolved as a critical payment infrastructure supporting the modern Indian economy.

Concept and Meaning of Cash-based NEFT Remittance

NEFT is a nation-wide payment system enabling one-to-one electronic transfer of funds from a remitter to a beneficiary. In a cash-based NEFT remittance, the sender approaches a bank branch, deposits physical cash, and instructs the bank to transfer the amount electronically to a beneficiary’s account using NEFT. The remitter is not required to maintain an account with the bank, making this service accessible to unbanked or underbanked segments of society.
Cash-based NEFT transactions are subject to regulatory guidelines, including limits on transaction amounts and mandatory compliance with Know Your Customer (KYC) norms. The facility is primarily designed to formalise cash transactions and integrate them into the regulated banking channel.

Historical Background and Regulatory Framework

The NEFT system was introduced in India in 2005 as a replacement for the earlier Special Electronic Funds Transfer (SEFT) system. Over time, the Reserve Bank of India expanded its scope to include non-account holders through cash-based remittances. This move aligned with broader national objectives such as reducing reliance on informal money transfer systems and strengthening transparency in financial flows.
The regulatory framework governing cash-based NEFT remittances includes:

• Mandatory identity verification of the remitter.
• Prescribed maximum limits per transaction, generally lower than account-based NEFT.
• Adherence to anti-money laundering (AML) and combating the financing of terrorism (CFT) norms.
  These measures ensure that while accessibility is enhanced, systemic risks are minimised.

Operational Process of Cash-based NEFT Remittance

The operational flow of a cash-based NEFT remittance is straightforward yet highly regulated. The remitter fills out an NEFT application form at a bank branch, providing details such as beneficiary name, bank, branch, and IFSC code. Cash is deposited along with applicable service charges. The bank then credits the amount into its internal system and initiates an NEFT transaction on behalf of the remitter.
Settlement occurs through the NEFT clearing mechanism managed by the Reserve Bank of India. With the introduction of round-the-clock NEFT settlement in recent years, transactions are processed continuously rather than in fixed batches, enhancing efficiency and speed.

Role in the Banking System

From a banking perspective, cash-based NEFT remittance serves multiple purposes. It allows banks to extend payment services beyond their existing customer base, thereby widening their reach. Banks also benefit from service charges levied on such transactions, which contribute to non-interest income.
Operationally, this facility strengthens the linkage between physical cash handling and digital payment infrastructure. It encourages banks to upgrade branch-level processes, improve compliance systems, and adopt technology-driven solutions for customer onboarding and transaction monitoring.

Significance in Financial Inclusion

One of the most important contributions of cash-based NEFT remittance lies in promoting financial inclusion. Large sections of the Indian population, particularly migrant workers, daily wage earners, and rural households, may not possess bank accounts. Cash-based NEFT provides them with a secure and formal channel to remit money, especially for domestic transfers.
By reducing dependence on informal remittance channels such as unregulated agents or couriers, this system enhances safety, lowers the risk of fraud, and ensures that funds reach beneficiaries reliably. Over time, exposure to formal banking services through such facilities can encourage individuals to open bank accounts and participate more fully in the financial system.

Impact on the Indian Financial System

Cash-based NEFT remittance contributes to the broader objective of digitisation of payments in India. Although the transaction originates in cash, its conversion into an electronic transfer ensures traceability and accountability. This supports macroeconomic goals such as improved tax compliance, better monetary policy transmission, and reduced circulation of unaccounted money.
For the financial system, increased NEFT usage leads to higher transaction volumes within regulated channels, strengthening payment system resilience. It also complements other digital payment initiatives by providing a transitional mechanism for individuals moving from cash-based to account-based and fully digital transactions.

Advantages of Cash-based NEFT Remittance

Several advantages make cash-based NEFT remittance a relevant instrument in the Indian context:

• Accessibility: Non-account holders can access electronic fund transfer facilities.
• Security: Transactions are processed through regulated banking channels under RBI oversight.
• Nation-wide Reach: Funds can be transferred to any NEFT-enabled bank branch across India.
• Transparency: Electronic records reduce disputes and enhance accountability.

These benefits collectively support inclusive growth and financial deepening.

Limitations and Criticism

Despite its usefulness, cash-based NEFT remittance faces certain limitations. Transaction limits may restrict high-value transfers, and service charges can be relatively higher for small remittances. The requirement of visiting a bank branch may also be inconvenient compared to fully digital alternatives.
Critics argue that as digital literacy and account ownership increase, reliance on cash-based remittance mechanisms should gradually decline. There are also concerns regarding operational risks at branch level, including errors in beneficiary details and compliance lapses if controls are weak.