Customers not liable for e-frauds, if reported in time

Onus Now On Banks To Make Good Losses

Concerned over the rise in complaints about unauthorized electronic transactions, the Reserve Bank of India has introduced a policy of `zero liability’ for customers in third-party frauds if they are reported within three days. This means banks will have to make good the losses suffered by customers.In cases where the victim notifies the fraud between 4 and 7 days after coming to know about it, the customer’s liability will be capped at Rs 5,000.

In a draft notification issued on Thursday , the RBI said that if a bank employee is responsible for the fraud, the customer must get his money back irrespective of whether it is reported in time or not.

The three-day time limit for reporting a fraud will start from the day the customer receives an intimation about the transaction from the bank. This can be either by way or an SMS, email or statement. This directive puts the onus on the bank to notify the customer of the transaction as soon as possible. The proposed rules will apply to all electronic transactions, including payments made remotely using net banking or cards and payments made in shops using cards or mobile wallets.

If a customer has shared his password or other payment credentials, he will be responsible for any transaction that takes place until the time he informs the bank of his indiscretion. Once he informs the bank, the bank will be liable for any loss that takes place subsequently .

Banks have been told that all complaints have to be resolved within 90 days from the date of reporting and to ensure that customer does not bear any interest cost or late payment fee in credit cards. If there is a reversal of a debit card fraud or net banking fraud, banks have to make good the loss of interest income.

The proposed norms place much more responsibility on the banks than in the past.Existing norms require banks to compensate customer only up to a limit. Also, this limit is left to the bank based on a board-approved customer relations policy .

To make it possible for the customer to report frauds on time, banks have been asked to provide multiple option in cluding website, SMS, interactive voice response systems, a dedicated toll-free helpline and a reporting option at home branch. Banks have also been asked to put in place systems acknowledging receipt of the complaint.

The tightening of norms comes at a ti me when online and mobile payments are growing at 100% and banks and payment companies are lobby ing with the regulator to relax two-factor authentication for low-value payments.

The RBI has been re sisting any relaxation on the two-factor aut hentication (usually a PIN or a password in addition to the card details) on the grounds that the present dispute resolution mechanism was not very robust. By reducing liability of the customer, RBI expects banks to put more robust systems in place.

 Mayur Shetty, Mumbai:

The Real Cost of Gold Loans

Indians love gold and even the poorest Indian tries to acquire the smallest trinket that doubles up as jewellery and long-term savings. Naturally, television advertisements featuring movie superstars who tell you how easy it is to borrow money against that carefully accumulated gold, touch an emotional cord.
Watching an Akshay Kumar slipping gold across the counter and getting a wad of cash back in a minute to finance a child’s education or to buy a tractor is so appealing that people across the economic spectrum look at gold loans as their first borrowing option, when they are in a tight spot. In almost every case, the gold that is pledged is not even a family heirloom of great emotional value and borrowers are clueless about the high interest they are forking out against an asset which fetches no return—one where although price appreciation has worked for Indians, over the decades, it is not guaranteed.
This emotional reaction and poor numeracy also makes lending against gold a very lucrative business. Allow us to explain why borrowing against gold is a mistake for most people, except those who own heirlooms of antique value far beyond the intrinsic value of gold in the jewellery.
Some Basics about Gold Loans 
Borrowing against gold is attractive because few questions are asked. The lender does not ask you to disclose your income, produce a salary-slip or worry about your credit score or credit report. But think about it; why should the lender worry? It has your valuable gold in its possession and the actual loan disbursed is just 75% or less than the market value of gold. The lender is in trouble only if the gold price crashes by 30%+. But past data shows that a sudden crash in gold is a remote possibility, if not impossible, and when the price falls, lenders immediately begin to pressure the borrower to either pay back a part of the loan or bring more gold/jewellery as collateral.
In most cases, only the interest is charged on a monthly basis, and the principal can be repaid at the end of the tenure to release the gold. The borrower can opt to repay both the interest and principal at the end of the tenure as well. However, the latter will prove to be costlier as the interest gets compounded. If a person defaults on interest payments, the penalty can be huge. Like every other loan, lenders may charge a processing fee, valuation charge, late payment penalty and pre-payment penalty, all of which add to the costs. Each lender has a different set of charges. Unlike equated monthly instalments (EMI), both repayment options involve pressure on the borrower to come up with a big chunk of money for repayment, to have the gold released. If you can, indeed, come up with such a sum, wouldn’t it be better to sell the gold and buy when you have the money? We will come to the arithmetic of this later.
Faster Process but Not Transparent
Most non-banking finance companies (NBFCs) claim that they offer a loan of 70%-75% of the market value of gold item. However, when we asked for the exact amount, we were told that only once they see the jewellery, they would be able to give the exact loan to value that can be availed. Even a RBI working group found that the borrower is generally not clear about the gold price used for valuing the ornaments.
The RBI working group found that the format and content of documentation followed by each NBFC appear to be different, although each one of them claims to be giving a pawn ticket and loan agreement copy to the borrower. But when they spoke to complaining borrowers, they found that the pawn tickets do not contain the specific details of the jewels pawned, their weight in grams and the assessed value of the jewels. It does not contain complete details of the annualised rate of interest, maturity period of loan, details of auction procedure in case of default, any other charges, or the maturity period of the loan, etc.
The procedure relating to auctioning of jewels is not transparently explained to the borrower. Even though the borrower is informed by the NBFCs about the auctioning of their jewels, the borrower is not informed where and when the jewels are auctioned.
In one complaint received by RBI, the borrower was neither informed about the auctioning of his jewels nor called for repaying his loan. Above all, though the market value of ornaments in this case was much above the total dues outstanding, the difference on the sale of ornaments was not given to the borrower. But let’s us now come to the simple math of why borrowing against your gold makes little sense.
The Actual Cost of Gold Loans
When you borrow against gold jewellery, you are paying a very high interest as well as documentation, processing and valuation charges on an asset that you already own. Further, since people only borrow against gold in an extreme emergency, the chances of paying back within a year are low, which means that the interest mounts and the risk of default is also higher. Let’s look at a few possible scenarios to check if taking a gold loan is worthwhile.
We have based our study on the cost of a gold loan from Mannapuram Finance. We were told that the interest rate will be 2% per month(pm) and the loan-to-value (LTV) will be around 70%. There are tenures of maximum three months; hence, at the end of each quarterly period, if only the interest is paid, the loan can be extended for another three months. This can go on until the entire principal is paid back. However, as the contract is renewed every three months, the borrower may need to pledge additional gold, if the price of gold falls and does not meet the LTV criteria.
Using the above information, let’s say Ramesh pledges 50gm of gold to avail a loan of Rs1 lakh at an interest of 2% per month. The market value of the gold is Rs1.44 lakh at the rate of Rs2,880/gm.
Now let’s analyse what Ramesh will actually pay under different repayment options and when gold prices are rising or falling. We will then compare this to whether selling the gold and buying it back in small lots every month would have been a better option for Ramesh.
Scenario 1: Gold Rates Remain Steady
The interest on a gold loan of Rs1 lakh works out to Rs2,000 per month. We assume Ramesh is capable of repaying Rs3,000 every month which includes interest and principal. At this rate, it will take him almost 56 months, or five years, to pay up the money and get his gold back. If Ramesh chooses to reduce the monthly payment by Rs500 to Rs2,500, it would take him nearly seven years to pay back the loan.
On the other hand, if he had chosen to sell the gold, instead of borrowing against it, he would have needed to sell only 35gm of gold to raise Rs1 lakh. Now, if he starts buying back gold worth Rs3,000 (equal to his repayment of principal plus interest in the above-mentioned scenario), he would have recovered his 35gm of gold in just 33 months or under three years.
Even if he bought back gold worth just Rs2,500 every month, he would have his gold back in 39 months. And he would not have paid heavy interest and processing charges to a gold loan company. But one may argue that gold prices may not remain the same and they could rise sharply, making a loan option more attractive. Or, as has happened recently, gold prices could fall too. Let us look at what would happen to Ramesh’s borrowing under these two scenarios.
Scenario 2: Gold Rate Rises
Suppose Ramesh sold 35gm of gold (as mentioned above), but gold prices began to rise by say, 6%-10% every year. Even in this situation, if he buys gold worth Rs2,500-Rs3,000 every month, he would still be able to buyback the entire amount of gold in four years. If the gold price rises more sharply, at 12%pa, it will take Ramesh about 50 months (a little over four years) to buy back the gold. In effect, even when gold prices rise, it makes better sense to sell the gold you have and buy it back, rather than borrow against it.
Scenario 3: Gold Rates Fall
If Ramesh has pledged gold to raise Rs1 lakh and gold prices fall, then he could be in serious trouble. On the other hand, if he sold gold to raise emergency funds and is buying it back, he is a real winner. Consider what happens if Ramesh had borrowed against his gold. If the price of gold declines significantly, he will need to pledge additional gold to maintain the loan to value ratio or repay a chunk of the money. Our analysis shows that Ramesh will need to pledge additional gold only if gold prices decline by 15%-20% on an annual basis. Also, if the LTV increases, the financier can charge a higher interest.
In the above scenario, a 12% decline in gold prices may not impact the value of gold pledged, if the amount repaid is Rs3,000 every month and includes a portion of the principal. However, Ramesh is capable of repaying only Rs2,500pm, with a very little part of the principal being repaid, he will need to increase the gold pledged amount by one gram at the end of the first year itself. By the end of the tenure, he would need to pledge an additional 3.25gm of gold, or pay a higher interest, in which case, his repayment period increases.
There is a also a good chance that he will not be able to keep up with this high interest cycle and end up losing the gold altogether or end up in a payment-trap, if he wants the same gold back.
On the other hand, if he had sold the gold and raised money and bought back even Rs2,500 worth of gold every month (using the money saved on interest), he would be able to buy more gold every month, as prices fall and get his gold back in less than three years.
The Reality
Clearly, liquidating gold to generate cash and buying it back at regular intervals is a much better option. It is foolish to pay a fat interest on an asset that you already own and take the risk of a penalty or losing the gold if you are unable to repay it in time. What is important is to avoid the emotional trap involved in wanting to retain the very same gold ornaments. Apart from a few gold ornaments, like a wedding or engagement ring, a mangalsutra, or a traditional piece of jewellery that has been handed down a few generations, there should be really no emotional attachment to an inert metal object. Also, most sensible women actually like to save carefully and make newer and better ornaments by melting down old ones. And many women also own jewellery that is gifted or handed down to them that they would be happy to sell and buy something new, contemporary and modern. It is far smarter to trade soppy sentimentality for good financial sense. So, the next time you hear of someone caught in a financial jam, tell them to switch off the gold loan advertisements and do some hard number-crunching.
Your Real Interest Cost and Terms
We contacted two of the biggest lenders to find out what a borrower would actually pay on a gold loan. We were told that the interest rate depends on: who is the customer, type of ornament, size and tenure of loan. This translates to a simple interest of anywhere between 12%-24% per annum. However, an RBI report of a working group published in February 2013 found that the interest charged was ‘not transparent’ and it was not clear whether the “maximum interest rate is limited to 24% or it sometimes could go up to 30% or more.”

 

The RBI also found that a major proportion of the gold loan portfolio of NBFCs covers an average interest rate of 24%-26% and only 2% of their portfolio comprises loan at an interest rate of 12%. It is always said that the poor in India pay much more and the RBI report confirms this. It found that those in the unorganised sector pay 30%pa (per annum) and higher penalties and there was less transparency in the transactions. Even otherwise, the RBI report found that a majority of the gold loans are for borrowing of Rs30,000 to Rs50,000 and the quantity of gold pledged on an average is 40 grams.

 

This really means that gold loan companies are thriving because Indians in the lower income groups are rushing to borrow against gold without understanding how much they are paying out, or exploring more sensible options. In most cases, you will find that they are carried away by advertisements featuring mega film stars and none of the advertisements breathes a word about risk factors such as high penalty clauses or transparency in interest charges. The RBI, as the regulator of gold loan companies, ought to have insisted on this, like the capital market regulator does with mutual funds.

 

As we said earlier, a gold loan requires the borrower to estimate her ability to pay interest, fees and charges and then a lump-sum to release the gold. But when borrowers are unable to work out the ridiculously high cost of borrowing against a valuable asset that they already own, what is the chance that they will accurately estimate their ability to repay the loan? If a borrower is unable to repay the loan, the lender gets possession of it.

 

How Popular Are Gold Loans?
India is a gold-loving nation and accounts for about 10% of the total world gold stock. Of this, rural India accounts for nearly 65% of gold owned, probably because it is seen as the safest asset. Most people have an emotional attachment to gold and will not sell it except in times of extreme financial distress. This is what makes gold loans such an attractive business for lenders. While the unorganised sector accounts for 75% of gold loans, the remaining 25% of the market, with organised sector institutions and banks, is also growing rapidly. According to the World Gold Council, out of the national gold stock of around 22,000 tonnes, about 600 tonnes is monetised through loans because they are easy to obtain and processed within hours, if not minutes, as claimed by the advertisements. It is clearly time to be less emotional and more sensible about gold.

 

The Great Indian Circus: Rs. 1.14 Lakh Crore Of Bad Debts Written Off Using Public Money

rbi

Public Sector Banks are more strained than ever before, going by the recent Indian Express exclusive which talks on the stressed assets of Public Sector Banks. Public Sector Banks (PSBs) are banks where a majority stake (i.e. more than 50%) is held by the government.


Take the following statistics:

  • Public sector banks are sitting on over Rs 7 Lakh crore stressed assets.
  • Bad loans written off by them between 2004 and 2015 amount to more than Rs 2.11 lakh crore. More than half such loans (Rs 1,14,182 crore) have been waived off between 2013 and 2015.
  • Bank-wise break-up shows State Bank of India, India’s largest bank, is way ahead of others in declaring loans as unrecoverable, with its bad debts shooting up almost four times since 2013 — from Rs 5,594 crore in 2013 to Rs 21,313 crore in 2015. In fact, SBI’s bad debts made up 40 per cent of the total amount written off by all banks in 2015 and were more than what 20 other banks wrote off.

The Public Sector Banks have been suffering due to many reasons but some of the important reasons includes:

1.) Lack of Accountability – The decision making board contains representatives of the government and the banks among other stake holders. The decisions are taken arbitrarily without any accountability for the bad decisions taken. Take for instance King Fisher Airlines, SBI who had the biggest exposure among the public sector banks could recover only Rs 155 crore out of the Rs 1,623 crore. The money lost is the money deposited by individuals in SBI among others. There are many other examples where banks have lost money hastily with no one held accountable.

2.) Collusion – A CBI investigation into the Kingfisher debt revealed IDBI had extended loans up to 700 crores despite board members warning them otherwise. Besides IDBI, many of the banks have reached a dead end, total of 7,000 crores have vanished to thin air with no body being held accountable for the same.

What is evident from the above Kingfisher example is that the people who are availing the debts simply wash their hands off besides pocketing a handful from the loans taken themselves. The Banks do their best to recover a part of the bad debt but in vain. The ultimate loss is of the depositor and the government. Since the government has majority stake in many of the banks, it becomes an obligation to re-infuse these banks with funds which in-turn are the tax payers money. What is evident is a structural siphoning off of public money with little or no accountability.

The Most Generous :

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The Logical Indian thanks The Indian Express for filing RTI and bringing this information to the public sphere. The Logical Indian is appalled by the spike in NPA (Non Performing assets) and bad debts of the public sector banks. We appeal to the government to make the public sector banks structurally incorruptible and accountable. We appeal to the RBI to set up an investigative body to look into all the bad loans and bring to books the people who had colluded for their own benefits at the cost of public money.

http://thelogicalindian.com/news/the-great-indian-circus-rs-1-14-lakh-crore-of-bad-debts-written-off-using-public-money/


RTGS / NEFT transfers to the wrong account

When transferring money through NEFT, RTGS, of SWIFT. if you input the beneficiary account number wrongly, then money goes to someone’s account and it is difficult to get back the amount.Pl read this article. Better way is to test transfer a small amount.

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When you transfer to the wrong account

It’s not as simple as asking your bank to reverse the transaction

Your salary’s in, and you set about transferring some money online to your parents. You owe your friend money or want to make a hotel reservation and choose the NEFT (National Electronic Funds Transfer) route.

Once you punch in the required numbers and hit the final confirm button, the amount is transferred seamlessly through NEFT. But horror! If you inadvertently typed in the wrong account number or put in the wrong IFSC code of the bank branch in which your recipient’s account is held, it will land in someone else’s account. What now? You can just ask the bank to reverse the transaction, right?

Sorry, no! That cannot be done. What’s worse, the ‘wrong beneficiary’ is not obliged to return your money.

What to do:

So, here’s what you have to do. First, the legal position. The Reserve Bank of India has clearly indicated that the transfer of funds electronically depends entirely on the account number. Unfortunately, the beneficiary’s name has little relevance in the online transfer process. The trouble with wrong beneficiary names arises later. Now, you can be confronted with three different situations.

One, if you punch in an account number which does not exist, the amount will automatically come back to your account. In case of any delay, your bank branch can help quicken the process.

The second situation is if you type in the wrong account number and the (unintended) beneficiary’s name is different from the one you actually wanted the amount to be credited to. Approach your bank branch and prove to them that the beneficiary’s name is different. The bank will then contact the other account holder and ask for the amount to be returned as there is strong evidence of erroneous transfer.

The third situation arises when you type the wrong account number and that (unintended) account belongs to a person with the same name as the intended beneficiary. In this case, it is a tedious process as you will have to prove the transfer itself to be wrong.

Note that the bank is not allowed to automatically take that amount away, even if it is a case of incorrect transfer. Barring the first case, in the other two situations, your bank can only play the role of a facilitator.

The situation becomes increasingly complicated if your bank and your beneficiary’s banks are different, and/or are in different cities, and so on.

Your bank can help by giving the contact details of the accidental beneficiary’s bank and help you connect with the branch manager.

But you will have to do all the work in requesting reversal of transaction. This can include you having to personally request the unintended beneficiary to transfer the money back to you.

In case the IFSC code is wrong, then too, you and your beneficiary will have to coordinate between multiple banks to settle the issue.

 

Easy precautions:

Banks normally ask you to type the account number twice; if you happen to commit a mistake in typing, the mismatch in the two numbers will not allow you to proceed further. So, there’s your first level of precaution.

Then, if the IFSC code is correct, it will ensure that the intended bank and branch are at least coordinated. If you want to transfer a large sum of money online, you can do a ‘test’ transfer.

So, first transfer a small amount of, say, 50 and check with the beneficiary if the amount has been received. Once you receive a confirmation, you can then safely transfer the rest.

And the simplest of rules to follow goes without saying. Double check the digits after typing!

Thanks – Roshan Pastakia

 


All Banks to issue Chip & Pin Cards w.e.f. 1 September 2015

Security and Risk Mitigation Measures for Card Present and Electronic Payment Transactions
RBI/2014-15/589
DPSS (CO) PD No.2112/02.14.003/2014-15
May 07, 2015
All Scheduled Commercial Banks including RRBs/
Co-operative Banks / State Co-operative Banks/
Central Co-operative Banks/ Authorised Card Payment Networks
Madam / Dear Sir,
Security and Risk Mitigation Measures for Card Present and Electronic Payment Transactions
A reference is invited to our circulars DPSS.PD.CO.No.513 / 02.14.003 / 2011-2012 datedSeptember 22, 2011 and DPSS (CO) PD No.2377 / 02.14.003 / 2012-13 dated June 24, 2013on security issues and risk mitigation measures related to Card Present (CP) transactions read along with circular dated February 28, 2013 on security and risk mitigation measures for electronic payment transactions wherein various timelines were indicated for accomplishment of tasks for securing card and electronic payment transactions.
2. The Reserve Bank has adopted a phased manner of implementation of security and risk mitigation measures in card transactions as evident from the instructions issued from time to time. The acceptance infrastructure is getting geared to accept EMV chip and pin cards. However, in case of card issuance, while some banks have already moved to EMV chip and pin cards issuance, a large number of banks continue to issue Magnetic stripe cards. Thus, given the level of readiness of the card acceptance infrastructure at point of sale and also the implementation of PIN@POS for debit cards, the time is appropriate to move further along the path to migrate away from magnetic stripe only cards to chip and pin cards.
3. Accordingly, banks are advised that with effect from September 01, 2015 all new cards issued – debit and credit, domestic and international – by banks shall be EMV chip and pin based cards.
4. The migration plan for existing magnetic stripe only cards will be framed in consultation with stakeholders and timeline for the same will be advised in due course.
5. These guidelines are issued under Section 18 read with Section 10(2) of the Payment and Settlement Systems Act, 2007 (Act 51 of 2007).
Yours faithfully
(Smt. Nanda Dave)
Chief General Manager

Loan settlement? Here is what you need to be careful about

loans, borrower, loan settlement, loan repayment, ABN AMRO Bank, NOC, Dadar Police Station, Delhi Police

Seven years after he settled a loan, a borrower is being subjected to numerous calls, notices and even arrest warrant. The only mistake, he committed was not to collect the NOC and account statement from the lender after his settlement 

Mumbai-based trader Ramnik Patel (name changed) was happy and relieved when in 2007 he repaid Rs58,000 to ABN AMRO Bank as full and final settlement against his loan outstanding. Seven years down the line, he is receiving calls from recovery agents, and notices from lawyers and warrants from places located thousands of kilometres away from Mumbai. He is not only disturbed, but feels like being mentally tortured just because a small mistake committed by the bank while updating its record.

In 2005, Patel took a personal loan of Rs2.15 lakh from ABN AMRO Bank. However, during 26/7 monsoon fury, he suffered heavy loss and could not repay his loan on time. Then on 21 March 2007, he received a letter from the Bank offering him a settlement. As per the offer letter, he was asked to pay Rs58,000 in two tranches of Rs29,000 each. The Bank also promised him that it would hand over all his unused post-dated cheques (PDCs) and no-objection certificate (NOC) within seven working days of the loan being closed on its system.
After accepting the offer from the Bank, Patel, promptly paid Rs29,000 each time on 28 March 2007 and 20 April 2007 to ABN AMRO Bank as per the settlement offer.
Meanwhile, ABN AMRO Bank was sold to Royal Bank of Scotland (RBS). RBS then sold all the debts of ABN AMRO to Kotak Mahindra group. Phoenix Asset Reconstruction Co Pvt Ltd, a unit of Kotak Mahindra group handles the recovery of these debts acquired from RBS.
Suddenly, in 2012, he received a phone call from somebody called as Choudhary from Patiala Parliament Police Station informing that there was a case filed against him and warrant was also issued by the Court. The warrant was sent from Delhi Police to Dadar Police station in Mumbai for execution. When Patel reached Dadar police station, he was told that a case was filed against him in 2011, which was transferred to Delhi Court. This was related with the loan he took from ABN AMRO Bank, he was told.
Here is a Checklist if you are going for a settlement with a lender…
  1. Keep copies of all your written communication with the lender
  2. Always have everything in writing (Even if you receive a phone call, send an acknowledgement mentioning points discussed during the call)
  3. Keep copies of the settlement letter, cheque/DD or pay order you submitted
  4. After the settlement, obtain a NOC and collect all your post-dated cheques, if any
  5. Do no forget to collect your loan account statement that shows zero balance

Interestingly, Patel never received any notice, memo or any warrant for his arrest from anybody until the phone call from Choudhary. Patel, then asked his lawyer to send reply to all concerned, including one lawyer called S Gupta from Delhi and police stations at both Delhi and Mumbai.

Again, in November 2013, Patel received a notice from Mumbai-based lawyer on behalf of Phoenix ARC Pvt Ltd. The lawyer, in the notice invited Patel to settle his loan in a conciliation camp (for settlement) organised by Kotak Mahindra Bank on 2 December 2013. The lawyer claimed that as on 30 April 2012, Patel had an outstanding of Rs42,811.95 that would have to be repaid along with an interest of 2% per month. Patel, then again had to reply to this notice and submit all the documents.
Next year, on 3 April 2014, Patel received a notice from the Mumbai District Legal Services Authority to be present during a hearing in the Lok Nyayalaya on 12th April. Phoenix ARC had approached the Lok Nyayalaya to take up the matter.
Patel went to the hearing and put forward his case. After looking at the documents and hearing Patel’s side, the representative of Phoenix agreed to verify his account and get back to him within seven days. They even gave an undertaking in writing.
This has been about nine months, since Patel went to the Lok Adalat and yet there is neither any response from the Bank nor any respite to him from the recovery agents.
So what went wrong with Patel? From his side, he did not collect the NOC and unused PDCs from ABN AMRO Bank, while the Bank failed to make necessary changes into its account books. This also raises big question, on how can a big lender like ABM AMRO forgets to update its loan book and record the settlement and passes on the same as dues to the buyer. In addition, since ABN AMRO no longer exists, how and where the borrower, who is being shown as defaulter, and harassed for recovery of dues that he had already paid, would go?
If you are facing similar issues, then you may want to take help from Moneylife Foundation’s free Credit Helpline  which offers free counselling to help you get out of this trap. In Mr Patel’s case, he approached the Credit Helpline and Moneylife Foundation’s trustees have also taken up this case with the Reserve Bank of India’s customer services department.

Receiving money through NEFT can put you in trouble

Despite directions from RBI, banks refuse to share details of the entity sending money through NEFT

The National Electronic Fund Transfer (NEFT), used by almost everyone to transfer money quickly, can also put the receiver in a difficult position. The main reason is, there are no details available about the remitter or sender and if the amount is large, then the recipient may end up facing Income Tax (I-T) Department queries. Remember what happened with Aishwarya Rai, when in 2006 she received a parcel containing 23,000 euros (around Rs14 lakh at that time) sent by an unknown person from the Netherlands?

Well, with banks hesitating in sharing details of the person or entity who is transferring money via NEFT, it may be you next time. Although the Reserve Bank of India (RBI) has directed banks to furnish appropriate details in passbook or account statement for credits sent and received by the customer through NEFT, all the recipient gets is just a name and amount. “A very generic mention as ‘NEFT’ or ‘NECS’ does not help customers in identifying the source of credits, particularly where multiple credits are afforded to their accounts through these products. The Core Banking Solutions (CBS) of banks should be enabled to capture complete information from the relevant fields in the messages, data files which can be displayed to customers when they access their accounts online or provided to them additionally when they approach the branch counters, help desks, call centres,” the RBI had said.

However, all the recipient gets to know is just a name. There are no details like sender’s PAN number, address and the cause/remark for the money transfer.

Often money launderers are found using bank accounts of low-income individuals for transferring money. In addition, due to the forceful implementation of the Jan Dhan Yojana, we have about 10 crore new bank accounts, out of which 73% do not have a single penny. But consider that tomorrow, if somebody uses these accounts to launder money, then without detailed information about the remitter, how is a poor Kalawati supposed to answer queries from the authorities, including but not limited to I-T department. In the absence of detailed information about the remitter, how will she explain the unaccounted money remitted into her account through NEFT?

Receiving funds from unknown remitters becomes an even bigger issue for non-governmental organisations (NGO), who need to give a receipt as well as I-T exemption certificate. If there is just a name of the remitter, how and where is an NGO, like Moneylife Foundation, supposed to send the receipt?

Another issue with NEFT fund transfer is the delay. According to RBI policy, banks need to afford credits to beneficiary accounts or return transactions (uncredited for whatever reason) to the originating / sponsor bank within the prescribed timeline. It also directed banks to move towards hourly settlement starting from 9am to 7pm on all week days and between 9am to 1pm on Saturdays. Yet, it appears that banks are still using the last part of the work-day or first hour of the next day for NEFT transactions.

Coming back to the Aishwarya Rai episode, the actor was grilled by the Customs official for two-and-a-half hours at the international airport as soon as she landed in Mumbai from Jodhpur. The parcel was allegedly sent by one Avineshwar from the Netherlands marked to the actress. It arrived at the Foreign Post Office in Mumbai during September 2006. Besides the currency, it also contained a top-brand shirt, a pair of binoculars, a DVD player and other electronic items. Following a notice, Aishwarya’s father Krishnaraj Rai, on 15th November met Custom officials to clarify her position. However, the officials insisted to know details from Aishwarya, due to which the actor had to come to Mumbai to clarify her position. She was shooting for the movie ‘Jodha Akbar’ in Jodhpur at that time. After the enquiry, she was give a temporary clean chit by the Customs.

Therefore, it is high time the central bank issues another order mandating banks to share all details of the remitter who is sending money through NEFT or any other payment method to the recipient and actually penalises banks if there are persistent complaints about flouting the RBI’s order.

Courtesy : MoneyLife Foundation

http://www.moneylife.in/article/receiving-money-through-neft-can-put-you-in-trouble/40102.html