While sending money back home, the speed and efficiency of transfer are uppermost on the mind of overseas Indians, as they predominantly use electronic wires and Swift for remittances, according to a study by the Reserve Bank of India.
The Society for Worldwide Interbank Financial Telecommunication (Swift) supplies secure messaging services. Each financial institution has a Swift code which is commonly used to identify the banks involved in an international wire transfer.
Despite being the costliest mode, Swift is used frequently. The charge for sending $500 could be around 5 per cent of the amount. Perhaps sending money "in time" is the top-most priority since close to 61 per cent of remittance amount is used to take care of family expenses.
On an average, about 20 per cent of the funds received were deposited in bank accounts and 4 per cent invested in land/ property/ equity shares, the study said.
Besides efficiency factor, the wider network of Indian bank branches abroad offering electronic fund transfer facilities is seen to influence the decision to use a particular channel.
Remittances essentially represent household income received from foreign economies arising mainly from the temporary or permanent movement of people to those countries.
Remittances in the context of India's balance of payments include funds that flow through formal channels, such as banking, postal, money changers and transfers in kind.
The main instruments used by migrant workers to send remittances to India include drafts, cheques, debit/ credit cards, money orders and direct transfers to bank accounts.
Swift/ online transfers are the most time-efficient means of remitting money, as they depend on electronic/ telegraphic transfer of funds with average time taken being mostly one to three days.
The share of total remittances through debit/credit cards is relatively low even though this mode is also fairly time efficient (1-4 days). Swift is the costliest means of transferring of funds compared with other modes of transfer.
Few banks recently provide online remittance transfer facilities which are both cost-effective and less time consuming. The State Bank of India's facility, SBI Express Remit, is used for fund transfers to India from the US/ the UK with round-the-clock services without visiting any branch/ bank.
This facility is provided with best conversion rates and nil or nominal transaction fee. Recently, there has been a significant increase in share of remittances through direct transfer to bank accounts.
Remittances made through cheques, drafts and money orders are the most time-consuming. The maximum time taken in remitting funds through these instruments can be as long as 30 days.
The cost of remittances across various modes of transfers has come down significantly in the current survey (November 2009) as compared to the previous one (July 2006), reflecting increasing competition and introduction of fast money transferring infrastructure.
North America continues to be the most important source region of remittances to India (about 38 per cent of the total remittances), while the Asian region (the Gulf and East Asia) contributes about 32 per cent.
A predominant portion of the remittances received (61 per cent) are utilised for family upkeep.
Referring to ploughing remittance for making investments, the study noted the share of investment in land/ property/ equity shares in the current survey (November 2009) registered a significant decline as compared to the share of 20-25 per cent recorded in the previous survey conducted in July 2006.
