RTGS: What is RTGS?

In the ever-evolving landscape of modern banking, the need for efficient and secure financial transactions has become paramount. Real Time Gross Settlement, commonly referred to as RTGS, has emerged as a cornerstone of this transformation. RTGS represents a fundamental shift in the way financial institutions process high-value transactions, offering a real-time and gross settlement mechanism that ensures the swift and secure transfer of funds. As we delve deeper into the world of banking and finance, understanding the nuances of RTGS and its pivotal role in today’s financial ecosystem becomes essential. 

This blog aims to shed light on the significance, mechanics, and applications of RTGS in the realm of banking.

What is RTGS and its Full Form?

RTGS full form is “Real-Time Gross Settlement,” and it is a specialized electronic funds transfer system used by banks and financial institutions for high-value and time-sensitive transactions. In an RTGS system, funds are transferred from one bank to another in real-time, meaning the transaction is processed immediately, typically within seconds or minutes. The term “gross” in RTGS signifies that each transaction is settled individually and in full, without netting or offsetting against other transactions. This ensures that the funds are transferred securely and without any dependence on other transactions, minimizing counterparty risk. Real-time gross settlement systems are often operated and overseen by central banks or financial authorities to ensure the stability and integrity of the financial system.

Features and Benefits of RTGS

• Safety and Security: RTGS, with its RTGS meaning (Real-Time Gross Settlement) in banking, is a highly secure method of transferring funds. The electronic nature of the transaction significantly reduces the risk of loss, theft, or fraudulent activity compared to physical instruments like checks or demand drafts.

• No Maximum limit: Real-time gross settlement transactions made through the bank branch typically do not have a maximum limit, making it suitable for transferring both small and large sums of money within the real-time gross settlement framework.

• Real-time transfer: RTGS, being a key component of real-time gross settlement in banking, offers real-time fund transfers. This ensures that the recipient’s account is credited immediately upon initiation of the transaction, adding to its efficiency.

• Seven days a week: RTGS operates on all days, including weekends and holidays, as part of its real-time gross settlement functionality, providing uninterrupted access for users to transfer funds when needed, enhancing convenience and accessibility.

• No physical instruments: Real-time gross settlement eliminates the need for physical instruments like cheques or demand drafts, as it is entirely electronic. This not only streamlines the process but also reduces the risk associated with physical documentation.

• Reduced risk: The absence of physical instruments in RTGS significantly reduces the risk of these instruments being lost, stolen, or fraudulently encashed by unauthorized individuals or parties, reinforcing its security.

• Convenience of internet banking: RTGS transactions, within the real-time gross settlement system, can be initiated conveniently from the user’s home or workplace through internet banking. This added convenience offers flexibility and ease of use in electronic fund transfers.

• No fees or charges: While some banks may charge nominal fees for Real-time gross settlement transactions, many banks offer this service free of charge, making it a cost-effective method for transferring funds within the real-time gross settlement framework.

• Legal backing: RTGS transactions, being legally recognized and regulated as part of the real-time gross settlement system, provide users with a sense of security and assurance that their financial transactions are protected by the law, further enhancing trust in the process.

How do Real-time gross settlement Transactions Work?

RTGS (Real-Time Gross Settlement) in banking is a vital system for facilitating the immediate and secure transfer of funds between two financial institutions or banks. RTGS transactions ensure swift and reliable fund transfers, promoting efficiency in the financial sector.

• Initiation by sender: The RTGS process begins when a sender, whether an individual or an organization, instructs their bank to transfer a specific amount of money to a recipient’s account at another bank. This instruction can be given through various channels, including online banking, mobile banking, or by visiting a bank branch.

• Verification and authorization: The sender’s bank verifies the availability of sufficient funds in the sender’s account to cover the requested transfer amount. If the funds are available, the bank authorizes the transaction.

• Transmission to RTGS system: Once authorized, the sender’s bank initiates the RTGS transaction by transmitting the payment instructions to the RTGS system. In many cases, this system is operated and overseen by the central bank.

• Central bank processing: The central bank plays a crucial role in Real-time gross settlement transactions. It receives and processes the transaction details, ensuring that they meet all regulatory and security requirements. The central bank also maintains settlement accounts for participating banks.

• Interbank settlement: The central bank then debits the sender’s bank’s settlement account and credits the recipient’s bank’s settlement account with the transaction amount. This step is critical in ensuring the settlement of the transaction in real-time and in gross, meaning each transaction is settled individually without netting against others.

• Notification to recipient bank: The recipient’s bank receives a notification of the incoming funds from the central bank. This notification triggers the crediting of the recipient’s account with the transferred amount.

• Recipient account crediting: Upon receiving the notification from the central bank, the recipient’s bank immediately credits the funds to the recipient’s account, making them available for use.

• Confirmation to sender: The sender’s bank sends an instant confirmation to the sender, notifying them that the RTGS transaction has been successfully completed. This confirmation provides both the sender and the recipient with assurance that the funds have been transferred securely and in real time.

• Transaction records: Both the sender’s and recipient’s banks maintain transaction records for their customers. These records serve as proof of the transaction and can be used for reconciliation and auditing purposes.

What Are the Different Modes for Initiating RTGS Transactions in India?

• Internet banking:  Banks offer internet banking services that allow customers to initiate RTGS transfers online. Users can log in to their internet banking accounts and follow the steps provided by their bank to complete the RTGS transaction.

• Mobile banking apps: Banks also provide mobile banking applications that enable customers to perform RTGS transactions using their smartphones or tablets. These apps are user-friendly and convenient for on-the-go banking.
• Bank branch: Customers can visit their bank’s physical branch and request an RTGS transfer in person. Bank staff will assist in processing the transaction and ensure that all necessary details are provided.

What Information Is Necessary to Begin an RTGS Transaction?

• The name of the beneficiary bank and branch.
• Recipient’s full name.
• IFSC code of the receiving bank.
• Amount to be transferred.
• Any relevant remarks or notes, if necessary.
• Sender’s account particulars.
• Beneficiary’s account number.

What Are the RTGS Transaction Fees in Banking in India?

As of July 01, 2019, the Reserve Bank of India (RBI) has implemented significant changes regarding processing and service charges associated with RTGS transactions, including RTGS charges. These changes are aimed at making RTGS transfers more accessible and cost-effective for customers.

Broad Framework of Service Charges: In order to standardize service charges, including RTGS charges, across banks and ensure transparency, a framework of charges has been established. This framework is designed to guide banks in setting their service charges for RTGS transactions.

a) Inward Transactions – Free: Banks are not permitted to charge any fee for processing incoming RTGS transactions. This ensures that recipients do not incur any charges for receiving funds via RTGS.

b) Outward Transactions – ₹2,00,000/- to ₹5,00,000/-: For outward RTGS transactions falling within the ₹2,00,000/- to ₹5,00,000/- range, banks can charge a fee of up to ₹25/- (exclusive of tax, if applicable).

c) Outward Transactions Above ₹5,00,000/-: For outward RTGS transactions exceeding ₹5,00,000/-, banks can charge a fee of up to ₹50/- (exclusive of tax, if applicable).

Note: Banks have the flexibility to charge lower rates if they choose to do so. However, they are not permitted to charge more than the rates prescribed by the RBI. These changes aim to create a more standardized and customer-friendly approach to RTGS service charges, ultimately benefiting individuals and businesses conducting RTGS transactions.

How To Initiate RTGS Fund Transfer Online?

• Log into your online banking account.
• Navigate to the “Funds Transfer” or “Payments” section
• Choose “RTGS Transfer” as the transfer method.
• Fill in beneficiary details: account number, beneficiary’s name, beneficiary bank’s details (name, branch), and IFSC code.
• Specify the transfer amount.
• Review and confirm the transaction details.
• Authorize the transfer using authentication methods like OTP.
• Receive a transaction confirmation with a reference number.
• The recipient will be notified of the incoming funds in real-time.
• Keep the confirmation details for your records.

What Are the RTGS Transaction Timings in India?

RTGS (Real-Time Gross Settlement) services are available 24 hours a day and seven days a week, including weekends and bank holidays in India. This continuous availability allows customers the flexibility to perform RTGS transactions at any time, ensuring quick RTGS transaction time. Furthermore, it’s noted that RTGS can be used for transferring amounts above ₹2 lakhs, subject to the third-party transfer limits established by the customer and the specific policies of the bank

What is the Processing Time for RTGS Funds Transfer?

Here’s the expected timeline for effecting funds transfer from one account to another through RTGS:

• Real-Time Transfer: In normal circumstances, the funds transfer through RTGS is processed in real-time, which means that the beneficiary bank receives the funds as soon as they are transferred by the remitting bank.
• Crediting Beneficiary’s Account: Once the beneficiary bank receives the funds transfer message, it is required to credit the beneficiary’s account promptly. Under standard guidelines, this should be done within 30 minutes of receiving the funds transfer message

Understanding RTGS Transaction Limits in India

The transaction limits for RTGS (Real-Time Gross Settlement) are as follows:

• Minimum amount: The minimum amount that can be transferred via RTGS is Rs. 2 lakh.

• RTGS Limit per day via bank branch: There is no specified upper limit for RTGS transactions when conducted through a bank branch. This means you can transfer any amount above the minimum threshold of Rs. 2 lakh.

• RTGS Limit per day via internet banking: If you choose to perform an RTGS transaction through internet banking, there is typically a maximum limit in place. This limit is often set at Rs. 25 lakh, but it may vary from one bank to another. Some banks may have higher or lower limits for internet banking RTGS transactions.

Important Considerations for Initiating an RTGS Transaction

When initiating an RTGS (Real-Time Gross Settlement) transaction, it’s crucial to exercise care and attention to ensure the accuracy and security of the transfer. Here are key considerations to keep in mind:

• Network compatibility: Verify that both the originating and destination bank branches are part of the RTGS network. RTGS transactions can only be processed between banks that are part of this system.

• Beneficiary details: Ensure that you have accurate beneficiary details, including the beneficiary’s full name, account number, and account type. Additionally, you need the name and IFSC (Indian Financial System Code) of the beneficiary bank branch.

• Account number accuracy: Extreme caution should be taken when providing the beneficiary’s account number. RTGS transactions rely heavily on the accuracy of this information. Any errors in the account number can result in the funds being credited to the wrong account.

• Transaction documentation: Keep records of the RTGS remittance instruction or message. These records serve as proof of the transaction and can be valuable in case of any disputes or discrepancies.

• Bank’s policies: Familiarize yourself with your bank’s specific RTGS policies, including transaction limits, charges (if applicable), and any additional requirements or procedures they may have in place.