The Option 2 in your answer is how most of the money is moved cross border. It is called International Transfer, most of it carried out using the SWIFT network. This is expensive, at a minimum it costs in the range of USD 30 to USD 50. This becomes a expensive mechanism to transfer small sums of money that individuals are typically looking at.
- Faster transfer of Money, typically 2 days.
Over a period of years, the low value payments by individuals between certain pair of countries is quite high, example US-India, US-China, Middle-East-India, US-Mexico etc ... With the intention to reduce cost, Banks have built a different work-flow, this is the Option 1.
This essentially works on getting money from multiple individuals in EUR. The aggregated sum is converted into INR, then transferred to partner Bank in India via Single SWIFT. Alongside the partner bank is also sent a file of instructions having the credit account. The Partner Bank in India will use the local clearing network [these days NEFT] to credit the funds to the Indian account.
- Typical 3-5 days turnaround. But this is coming down.
- Less Expensive compared to SWIFT.
- Slightly better Fx Rate compared to SWIFT for small payments.
- Free Value added services in some cases [ie Open an Fixed Deposit by the transfer]
Other methods include you writing a check in EUR and sending it over to a friend/relative in India to deposit this into Indian Account. Typically very nominal costs. Typically one month of timelines.
Another method would be to visit an Indian Bank and ask them to issue a "Rupee Draft/Bankers Check" payable in India. The charges for this would be higher than Option 3, less than Option 1. Mail this to friend/relative in India to deposit this into Indian Account. Typically couple of days timelines for transfer to happen.