Real Time Gross Settlement (RTGS) is a secure electronic fund transfer system, providing real-time on-line settlement for inter-bank transactions and customer-based inter-bank transactions of any amount across the country.
It is a large value funds transfer system whereby financial intermediaries can settle inter-bank transfers for their own account as well as for their customers. The system effects final settlement of inter-bank funds transfers on a continuous, transaction- by-transaction basis throughout the processing day. The Reserve Bank has stated that the receiving bank is under an obligation to credit the beneficiary customer’s account within two hours of receiving the credit notification at its payment systems gateway.
The system went ‘live’ on March 26, 2004 with State Bank of India, HDFC Bank, Standard Chartered Bank, and Saraswat Co-operative bank as the first participants. members. Each member is called RTGS participant. As on 16.9.2004, there were 83 participants to this system (Annexure – I. The most updated list is available on the RBI website under the RTGS link). They account for more than 90% of the total value of inter-bank settlements in Mumbai
From April 29, 2004, the RTGS System was enabled for the settlement of customer transactions. This is called “ Straight Through Processing.” (STP). Under STP, the receiving participant upon receiving the credit advice through system, is allowed to directly credit the customer’s account without any manual intervention. As mentioned earlier, the receiving bank is under an obligation to credit the beneficiary customer’s account within two hours of receiving the credit notification at its payment systems gateway.
Inter-bank settlements arising out of money market operations, securities purchase / sale were hitherto settled through RBI cheques, which were physically presented for realization of payment. This practice involved both manpower and time for timely presentation of the instrument for realization. RTGS has simplified this payment system and enables settlement of inter-bank accounts through computerized systems immediately.
RTGS is similar to S.W.IF.T. which is the facility used for international payments.
Transfer of funds is made individually and sequentially for full value of each payment.
Final settlement takes place provided there is sufficient covering balance, in the special account opened with RBI by the members of RTGS.
The payment settlement occurs without any time lag unlike the other payment system (i.e. in real time) for full value of each payment (i.e. gross). Hence this settlement is named as Real Time Gross Settlement.
Payment under RTGS is unconditional and irrevocable regarding the finality of settlement.
RTGS System is functional for 362 days in a year. Thev, except .the following 3 national holidays:
1) 26th January,
2) 15th August and
3) 25th December.
Reserve Bank of India and members of the RTGS:
In RTGS system Reserve Bank of India (RBI) is apex body. All banks and financial institutions apply for membership to the RBI and once admitted, are called its RTGS members.
There are 4 types of membership
– Type A, B, C and D.
This category includes all Scheduled banks, including scheduled co-op. banks.
- Are eligible for all types of transactions, including customer-based transactions.
- Will have a Participant Interface (PI) each.
- Eligible for Intra-day liquidity (IDL) support from the RBI.
This category comprises of all primary dealers (other than those in Type “A”),
- Eligible for all types of RTGS transactions excluding customer-based RTGS transactions.
- Have Participant interface (PI) each.
- Eligible for intra-day liquidity support from RBI.
- Will not have PI and not eligible for Intra-day Liquidity support from RBI
- Will deal through Sponsor bank, which is Type A member. Only one sponsor bank is permitted.
Membership Type “ D “:
This comprises of all clearing entities, other than A, B, C types.
- Each member will have Net Settlement Interface software, i.e. clearing software from RBI.
- Eligible to submit Multilateral Net Settlement batch/s (MNSBs) for settlement, and will receive notifications, including broadcast.
How does RTGS function?
The RTGS system consists of an apex level server at Reserve Bank of India having connectivity with servers of member banks, called Participant’s Interface (PI). These bank level servers can be connected to their branches / customers through VSAT network.
Each member needs to open a special current account called “RTGS Settlement Account” with Deposit Accounts Department (DAD), of RBI, and maintain sufficient balance for payments to the debit of this account. Credits to this account are through system and without any need for an intervention by the beneficiary participant.
Operations at the Participant Interface (PI) level:
RTGS participant initiates the payment against the written request of its customer or against an RTGS message for making a payment.
Each RTGS member is free to decide on internal control levels of authority for authorization and finality of messages. The messages once authenticated and sent are final and irrevocable.
Authorisation is made possible through digital card signatures, issued by Institute for Development and Research in Banking Terminology–Certifying Authority (IDRBT-CA), Hyderabad. However, password based method can be used for initiating the message at the clerical level, by the respective members.
Presently, “Logica” is the software used by the RTGS participants. .
Once the authentication is complete at the participant level, the outward messages are arranged in a queue system. The payment is effected to the debit of “Settlement Account” through the RBI, on the basis of the availability of funds in the account. RBI clears the queue on First – In –First – Out (FIFO) basis.
Important Details in transactions:
- First 4 characters represent the bank/institution’s name in short.
- Fifth character is marked ‘0’ (zero) and is reserved by RBI without allotment.
- Last 6 characters in the code are institution's choice for referring to their department / office. These six characters can be digits / alphabets or both.
a) Kotak Mahindra Bank is coded as - KKBK0000632
b) HDFC Bank Ltd is coded as - HDFC0999999.
Banks could use balances
maintained under the cash reserve ratio (CRR) instead of the intra-day liquidity
(IDL) support by RBI. The RBI has fixed the IDL limit for banks to three times
their net owned fund (NOF).
How is RTGS superior to the other payment systems?
1) It reduces the general risks in any payment system, such as Liquidity risk, Credit risk and systemic risk
2) The payment queue is cleared on FIFO basis as and when the fund is provided by member banks in the Special Current Account, and RBI controls the movement in the queue.
3) Intra-day liquidity support norms are strict and RBI views any default seriously.
4) The entire system is based on technology, and there is no physical movement of instrument.
5) Under RTGS system itself, we can do all the following transactions, without any restriction of upper limit on the amount of the transaction.
A) Inter-institutional transactions.
B) Customer transactions.
C) Delivery versus Payment transactions.
D) Own Account transfers transactions.
6) The inter-bank payments, which were done by RBI cheques are done through RTGS now. Payment by RBI cheque is allowed only if one of the parties to the transaction is not an RTGS member.