After we found the list of IFSC codes which is used as one of the criteria while withdrawing your funds to Indian banks we almost over looked one more factor NEFT or National Electronic Funds Transfer. PayPal Says
PayPal uses the National Electronic Funds Transfer (NEFT) system. Please provide the IFSC code of a participating branch location. If you provide an IFSC code from a bank branch that is not part of the NEFT network, your withdrawal will not be completed and a return fee will be charged
Looking for it I found a useful at RBI ( Reserve Bank Of India ) site which tell’s us all about NEFT . I have taken up 3 important questions from there
Q.1. What is NEFT System?
Ans: National Electronic Funds Transfer (NEFT) system is a nation wide funds transfer system to facilitate transfer of funds from any bank branch to any other bank branch.
Q. 2. Are all bank branches in the system part of the funds transfer network?
Ans: No. As on December 29, 2007, 34510 branches of 82 banks are participating. Steps are being taken to widen the coverage both in terms of banks and branches.
Q.10. How I will know which are the branches participating in the NEFT?
Ans: RBI publishes the list of bank branches participating in the NEFT on its website i.e. http://www.rbi.org.in/scripts/neft.aspx
You can take up the excel file from the link above which has the banks which can be really used with PayPal. I hope that helps lot of people on this 
