Real Time Gross Settlement System

The Reserve Bank of India introduced RTGS in March 2004 for transferring funds electronically from one bank to another bank on real time (continuous processing) and on gross basis. It is a faster and efficient mode that facilitates instant transfer of Inter and intra bank funds, as well customer payments to any account with any bank in India through a secured system. RTGS is maintained and operated by the RBI.

All transactions sent through RTGS are queued and submitted on ‘First in first out’ basis. Banks participating in RTGS has an option to assign priorities to their transactions.  Transactions are settled on one to one basis without bunching with other transaction. Transaction involving banks are settled on a continuous gross basis (on a transaction by transaction basis) with the Reserve Bank.

As per Sec.2 (d) of the Payment and Settlement Systems Act 2007, Gross settlement’ means “a payment system in which each settlement of funds or securities occurs on the basis of separate or individual transactions.”

The digitally signed (PKI) messages for transfer of funds flow through the INFINIT using SFMS to Inter Bank RTGS gateway at RBI. It is necessary for both the sending and receiving branches of banks to be RTGS enable.

Payment messages sent by a bank for crediting beneficiaries account are routed through the Inter-Bank Funds Transfer Processor (IFTP) which contains the settlement account processor.

Since the money transfer takes place in the books of Reserve Bank of India, settlement is immediate, final and irrevocable. (Sec.23 of ‘The Payment and Settlement Systems Act, 2007’)  Funds are instantaneously transferred on a ‘real time basis’ between banks and beneficiary’s account gets credited within two hours. RTGS reduces settlement risks and eliminates credit as settlements occur simultaneously. RBI also provides intra-day fund liquidity to participating banks for smooth and timely settlement.

A customer desirous of availing this facility has to approach his bank with the following information:

1. Amount to be remitted.

          2. Customer’s account number with authority to debit account.

          3. Name of beneficiary’s bank.

          4. Beneficiary’s name and his account number.

          5. Sender to receiver information, if any.

          6. The IFSC code of the receiving branch (IFSC code in printed on the cheque leaf. A remitter can ascertain the number from the beneficiary.)

 Though the system is primarily used for high value payments, individuals can transfer funds involving  2 lakh and above through RTGS. There is no upper amount ceiling for RTGS transaction. RBI has directed banks to offer the NEFT facility to their customers for transactions below  1 Lakh. For transferring funds through RTGS charges are levied.

Banks transfer funds between themselves and with RBI through RTGS in respect of following transactions.

1.   Money market transactions.

                   2.   Foreign exchange –Rupee Settlement.

                   3.   Capital market and debt instruments – Rupee Settlement.

                   4    Funds Settlement under DvP (delivery versus Payment) for Government

                       Securities and Treasury Bills.

                   5.  Funds settlement after securities auctioning.

                    6. Funds Settlement after various inter-bank clearings MICR, Returns, ECS, etc.

                                        

The Clearing Corporation of India (CCIL) is the settlement agency through whom transactions are settled.

The RTGs members can undertake following types of transactions through RTGS.

• Inter-institutional transactions
• Customer transactions
• Delivery versus Payment transactions
• Own Account transfers transactions
• Multilateral Net Settlement Batches transactions

RTGS members send different types of payment messages through the Inter-Bank Funds Transfer Processor (IFTP). The funds transfer messages are digitally signed and encrypted for security purposes.

The moment Settlement Account of the bank sending payment instructions is debited and Settlement Account or the Current Account of RTGS member recipient bank has been credited, the payment transaction is considered to have been settled. RTGS members have to open a ‘Settlement Account’ with the Deposit Accounts Department of RBI at Mumbai and have to give an authority to RBI for debiting their current account and crediting settlement Account.

The settlement account of RTGS member is funded at the start-of-day from the current account maintained with the Deposit Accounts Department of RBI. At the RTGS end of day balances in the Settlement Account is swept back to the funding account of the RTGS member. RBI provides intra-day liquidity facility to the eligible RTGS members for settlement of the transactions during the RTGS business day. This facility of intra-day liquidity is used by RTGS members to overcome genuine short term funds requirements. Since banks have to maintain adequate funds to meet their liquidity, RBI conducts Repo auctions for meeting payment obligations under RTGS system.  

Difference between EFT/ NEFT and RTGS

EFT/ NEFT = In electronic fund transfer system transactions are settled in batches. The system operates on a deferred net settlement (DNS) basis. In DNS, the settlement takes place with all transactions received till the particular cut-off time. Any transaction initiated after a designated settlement time has to wait till the next designated settlement time. NEFT operates in hourly batches - there are eleven settlements from 9 am to 7 pm on week days and five settlements from 9 am to 1 pm on Saturdays. Any transaction initiated after a designated settlement time would have to wait till the next designated settlement time.

RTGS= In RTGS, transactions are processed continuously during the RTGS business hours. Funds are received by branches in real time. As soon as the funds are transferred by the remitting bank, account of beneficiary is credited within two hours of receiving money.

EFT/ NEFT = There is no minimum or maximum stipulation of amount.

RTGS= The system is primarily for large value transactions. The minimum amount to be remitted through RTGS is Rs.2 lakh. There is no upper ceiling for RTGS transaction.