What changed
Previously, penal interest for delays in NEFT was at Bank Rate, while NECS/ECS used Bank Rate plus 2%. Now, all three systems will use the current RBI LAF Repo Rate plus 2% for compensation. Additionally, NEFT originating banks should endeavour to process transactions within two hours (preferably in the next available batch) or inform customers of delays.
What it means for you
Banks must update their systems to calculate penal interest using LAF Repo Rate plus 2% for all retail electronic payment delays, ensuring uniformity. This increases the penalty rate for NEFT delays (from Bank Rate to Repo Rate + 2%), potentially raising compensation costs. Banks need to tighten internal processes to avoid delays and associated penalties.
What you must do
- Update internal guidelines and system logic to apply LAF Repo Rate plus 2% for penal interest on NEFT, NECS, and ECS delays.
- Train operations and customer service teams on the new uniform penal interest rate and NEFT processing timelines.
- Ensure NEFT transactions are processed within two hours or inform customers of delays with reasons.
- Review and adjust any existing penalty clauses in customer agreements to reflect the new rate.
Who it affects
All member banks participating in NEFT, NECS, and ECS, Operations teams handling electronic payment settlements, Customer service departments managing delay complaints
When does this change take effect?
The modifications are applicable with immediate effect from September 1, 2010.
What is the new timeline for processing NEFT transactions?
Originating banks should endeavour to put through NEFT requests within two hours, preferably in the next available batch, or inform customers of any delay and reasons.