Money transfer rules: RBI issues new rules for domestic transaction from Nov 1; details here

The Reserve Bank of India (RBI) has rolled out a new framework for Domestic Money Transfer (DMT) in July 2024, targeting regulated enterprises. The updated guidelines focus on bolstering Know Your Customer (KYC) record standards and honing in on banking services and payment systems. These fresh directives come into effect as of November 1, 2024.

The aim of the revised regulations is to enhance the security of domestic money transfers and ensure adherence to prevailing financial laws. In light of the increasing prevalence of cashless and digital transactions in India, the intention is to provide a robust and secure structure for money transfers.

The alterations made to the existing framework were the product of a meticulous evaluation of various payment transfer services. As per a communication issued by the Reserve Bank of India to authorised payment system operators, remitting banks are now mandated to obtain and maintain a record containing the name and address of the beneficiary for cash disbursement. Moreover, every transaction initiated by a remitter must undergo validation through an additional factor of authentication (AFA).

The RBI in its July circular said: “The framework for Domestic Money Transfer (DMT) was introduced in 2011, vide RBI circular DPSS.PD.CO.No.622/02.27.019/2011-2012 dated October 5, 2011. There has been significant increase in the availability of banking outlets, developments in payment systems for funds transfers, and ease in fulfilling KYC requirements etc., since then; and now users have multiple digital options for funds transfer. A review was recently undertaken of various services facilitated in the current framework.” 

Key details

1. Banks are required to maintain a record of the beneficiary's name and address during cash transfers to promote transparency and accountability in financial transactions.
2. Both Banks and Business Correspondents (BCs) are obligated to verify the remitter's cell phone number and relevant documentation.
3. Remitters will undergo registration process using an authenticated mobile phone number and a self-certified 'Officially Valid Document' (OVD) as per the guidelines set by the Reserve Bank of India (RBI).
4. The new framework mandates remitting banks to keep track of the name and address of beneficiaries for cash pay-out services in order to enhance traceability and accountability in cash-based transactions.
5. These measures have been implemented to strengthen the oversight and accountability in cash transactions.
6. Additional authentication will be needed for each transaction.
7. Remitting banks and their BCs must follow the Income Tax Act rules on cash deposits.
8. Remitter banks must include the remitter's details in the transaction message on systems like IMPS and NEFT.
9. Cash-based remittance transactions must have a specific identifier in the message.
10. For Cash Pay-out Service, the remitting bank has been asked to obtain and keep a record of the name and address of the beneficiary.

Impact on customers

> In order to utilise cash pay-in services, banks and business correspondents are required to register remitters with a verified cell phone number and a self-certified Officially Valid Document (OVD) in line with the Master Direction – Know Your Customer (KYC) Direction 2016.

> This measure is implemented to strengthen identity verification procedures and mitigate the risks related to potential fraud incidents.

> It is important to note that the updated guidelines do not apply to card-to-card transfers, as they will continue to be governed by the existing regulations specific to such transactions.

Cash payout services

Cash pay-out refers to transferring funds from bank accounts to beneficiaries who do not have a bank account. The process of cash pay-out involves transferring funds from bank accounts to individuals who do not have their own bank accounts. In 2011, the central bank issued a statement allowing banks to offer services that enable clients to transfer funds from their accounts for cash delivery to recipients without bank accounts at an ATM or through a designated agent known as a Business Correspondent. The maximum amount allowed for such transfers was increased from Rs. 5,000 to Rs. 10,000 per transaction, with a monthly cap of Rs. 25,000. 

“Banks are permitted to provide services which facilitate transfer of funds from the accounts of their customers for delivery in cash to the recipients not having bank accounts at an ATM or through an agent appointed as Business Correspondent. It has been decided to raise the ceiling on the value of such transfers from Rs. 5,000 to Rs. 10,000 per transaction subject to the cap of Rs. 25,000 per month,” the RBI had said.