Goodbye DD, Welcome NEFT

This is from Kolkata in the early 90s. The city has its fair share of migrant workers from the interiors of Bihar. These workers would send money to their family back home. They would buy an envelope from the Post office and since most of them were illiterate, they would approach one of the many men sitting on the pavement with a desk (called letter writers) around the GPO. They would dictate their home address and also a small note to their family members, the wife in most cases. Then they would put the currency notes inside the envelope and go to the post office counter and do an insured parcel, the insurance being the value of the currency inside. The letter writers would charge a nominal fee for their service. The dishonest among them, would occasionally pocket a currency note, when the client is not watching.


I once asked one of the workers why he was using this method rather than the more popular instrument of a Money order. His rationale was that he wanted to be sure that his family received the exact currency notes for which he had worked so hard. In the case of Money order, he was sure that the currency notes he deposited in Kolkata would certainly not be given to his family back home. How cute !


The need for sending or receiving money is a common need for everyone, not just migrant workers. Among the educated middle class who have a bank account, cheques and drafts (DDs) are popular instruments for transferring money. DDs though safe are inconvenient too. You have to visit a branch, fill up a form, deposit cash or a cheque and then wait to collect the draft. Then you would have to search for an envelope, write a note and put the DD inside. Then look for a post office or a courier. The money is not transferred until the recipient deposits into his/her account and wait for a day to get the credit. Depending on the amount and the bank, the DD charges are not insignificant. In addition, there are courier or registered post charges.


The RBI introduced electronic fund transfer between accounts through a scheme called National Electronic Fund Transfer in 2008. If you have to send money to a person in another city, all you need to know is their bank, branch (preferably the IFSC) and savings account number. Once you add the payee, you could go to your online banking account and make the transfer. For safety, many banks send an auto generated code through SMS for verification purpose. The transfer is done within two hours. Both the parties receive SMS confirmation. As per RBI, there is a charge of only Rs 6 for transfers upto Rs 1 lakh. NEFT is very convenient, safe, fast and inexpensive too. 


After some initial teething troubles, this mode of transferring money has really become successful. A look at the RBI’s latest annual report confirms this. Since 2008-09, the volume of transactions and the value of trasactions have been doubling year-on-year. From 32.2 million transactions in 2008-09, it has reached 132.3 million transactions in 2010-11. In terms of value the amounts transferred have grown from Rs 2.5 lakh crore in 2008-09 to Rs 9.39 lakh crore in 2010-11.


Retail customers have shifted in a big way from DDs to NEFT. A conversation with a Bank manager confirmed this. He mentioned that from about 100 odd DDs every day, banks now do not have more than 5 or 6 DDs everyday. DDs are now only used for paying exam fees or tender fees etc. Personal remittances are shifting fast to NEFT.


Much that we crib about our government, bureaucrats and other institutions, let us acknowledge some services like NEFT that make our life easy. 

( This post first appeared in The South Reports


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