RTGS: What is RTGS?

byMehak BaglaLast Updated: September 4, 2023

In the world of finance and banking, RTGS is a crucial system that enables the instantaneous transfer of funds between banks and financial institutions. RTGS offers a secure and efficient means of transferring large amounts of money, providing businesses and individuals with a reliable method for conducting high-value transactions. By eliminating the need for intermediaries and facilitating real-time transfers, RTGS plays a vital role in fostering economic growth and facilitating seamless financial operations. 

RTGS stands for Real Time Gross Settlement. It is a money transfer system that allows the transfer of funds from one bank account to another in real time and on a gross settlement basis. The term, ‘real-time’ implies that transactions through RTGS are processed right when they are initiated by the sender, and ‘gross settlement’ means that the instructions regarding the transfer of funds occur on a one-to-one basis. 

In this blog post, we will delve deeper into the concept of RTGS, exploring its functionality, benefits, and significance in the modern financial landscape. Whether you’re new to the term or seeking a comprehensive understanding of RTGS, this article will serve as a valuable resource to unravel the intricacies of this essential financial system.

Understanding the Features of RTGS

Here’s all that you need to know about money transfers through RTGS-

  • Real-time processing: RTGS systems provide immediate and final settlement of fund transfers. Transactions are processed and settled individually, without any batching or netting process, ensuring real-time transfer of funds.
  • Gross settlement: RTGS settles transactions on a one-to-one basis, meaning each transaction is settled individually and not combined with other transactions. This ensures that funds are settled without any offsetting or netting against other payments.
  • High-value transactions: RTGS is primarily designed for large-value and high-priority transactions. There is usually a minimum threshold for transaction value, and it varies depending on the jurisdiction.
  • Instant availability of funds: Once a transaction is processed through RTGS, the funds become immediately available to the recipient. This feature makes RTGS suitable for time-sensitive payments, such as interbank transfers, large business transactions, securities settlements, and government payments.
  • Continuous operation: RTGS systems typically operate continuously throughout business hours, allowing for transactions to be processed and settled at any time during operating hours. This ensures efficient and timely processing of payments.
  • Secure and reliable: RTGS systems employ robust security measures to protect the integrity and confidentiality of transactions. They also have built-in mechanisms for error detection, correction, and reconciliation to ensure accuracy and reliability.
  • Settlement finality: Once a transaction is settled through RTGS, it is considered final and irrevocable. This feature provides certainty and reduces counterparty risk in financial transactions.
  • Centralized control: RTGS systems are usually operated and regulated by a central bank or a designated authority to maintain stability and oversight over the financial system.

Benefits of RTGS Transactions

RTGS transactions offer several benefits compared to other forms of fund transfers. Here are some of the key advantages:

  • Real-time settlement: RTGS enables immediate and final settlement of funds, ensuring instant availability of funds to the recipient. This feature is particularly beneficial for time-sensitive transactions where immediate transfer of funds is required.
  • High-value transactions: RTGS is designed for large-value payments, making it suitable for high-priority transactions such as interbank transfers, corporate payments, and government transactions. It allows for the efficient and secure transfer of significant amounts of money.
  • Reduced settlement risk: RTGS systems provide settlement finality, meaning once a transaction is processed and settled, it becomes irrevocable. This reduces counterparty risk and eliminates the possibility of settlement failures or disputes.
  • Accurate and reliable processing: RTGS systems incorporate robust error detection, correction, and reconciliation mechanisms. This helps ensure the accuracy and reliability of transactions, minimizing the chances of errors or discrepancies during the transfer process.
  • Improved cash flow management: With RTGS, businesses, and individuals can manage their cash flow more effectively by having immediate access to funds. This allows for better liquidity management, timely payments, and enhanced financial planning.
  • Enhanced transparency: RTGS transactions provide clear visibility into the movement of funds. Participants in the transaction can track and trace the payment flow, facilitating transparency and accountability in financial transactions.
  • Efficient interbank settlements: RTGS systems play a crucial role in interbank settlements, enabling smooth and efficient transfer of funds between banks. This helps maintain the stability and integrity of the financial system by facilitating timely and secure settlements.
  • Support for monetary policy implementation: RTGS systems are often used by central banks to implement monetary policy measures effectively. They provide a mechanism for the central bank to manage liquidity, control interest rates, and influence the overall money supply within the economy.

How do RTGS Transactions Work?

RTGS (Real-Time Gross Settlement) transactions work through a centralized payment system that facilitates the immediate and final settlement of funds transfers between participating banks or financial institutions. Here’s a simplified overview of how RTGS transactions typically work:

  • Initiation: The sender, often an individual or a business, initiates an RTGS transaction through their bank. They provide the necessary details, including the recipient’s bank name, account number, and the amount to be transferred.
  • Sender’s Bank: The sender’s bank receives the transaction request and verifies the sender’s account balance and the availability of funds. If the sender has sufficient funds, the bank debits the sender’s account for the transfer amount.
  • Communication and Routing: The sender’s bank communicates the transaction details to the RTGS system. This can be done electronically through secure networks or dedicated communication channels. The system routes the transaction to the recipient’s bank based on the provided information.
  • Recipient’s Bank: The recipient’s bank receives the transaction information from the RTGS system and credits the recipient’s account with the transferred amount. The recipient’s bank may perform validation checks to ensure the accuracy of the transaction details and account information.
  • Settlement: The RTGS system facilitates the settlement process by debiting the sender’s bank account held with the system and crediting the recipient’s bank account. The settlement is done on a one-to-one basis, meaning each transaction is settled individually, without offsetting against other payments.
  • Finality and Confirmation: Once the settlement is complete, the transaction is considered final and irrevocable. The sender and recipient banks typically provide confirmation to their respective customers, indicating the successful completion of the RTGS transaction.
  • Reporting and Reconciliation: Participating banks and the RTGS system generate reports and statements detailing the RTGS transactions processed. These reports help banks reconcile their accounts and ensure accurate record-keeping.

Charges Applicable on RTGS Transactions

No charges are applied to online RTGS transfers. However, if the RTGS transaction is completed at a bank branch, a fee of Rs. 15 plus GST is applied.

RTGS Transaction Timings

RTGS transactions can be performed 24*7, except between 11:30 PM and 12:30 AM. This one-hour gap is due to the cut-off.

Details Required to Perform RTGS Transaction

To process transactions through RTGS, the following details must be provided-

  • Amount to be transferred
  • Bank Account number
  • Beneficiary’s name
  • Bank’s branch
  • Beneficiary’s IFSC
  • Beneficiary’s bank branch

Points to be Considered

While initiating transactions through RTGS, the following points must be kept into consideration-

  • Before you begin to initiate a payment through RTGS online, you must add the beneficiary to your account. To do so, you must provide the beneficiary’s name, bank account number, account type, bank name, and IFSC
  • The minimum amount that can be transferred via RTGS is Rs. 2,00,000
  • There is no maximum limit on the amount that can be transferred through RTGS
  • The RTGS service is available 24*7, all throughout the year
  • To clearly identify a transaction made through RTGS, each transaction is allotted a UTR number, which is a 22-character long code, unique to each transaction
  • Transactions made through RTGS are processed on a one-to-one basis
  • RTGS facility can be accessed at any time, on any day of the year
  • The Real Time Gross Settlement method is mostly used for transactions of high value
  • The RTGS service can be used using both online and offline modes

What happens if the amount sent through RTGS does not reach the beneficiary?

In case, the amount transferred through RTGS does not reach your beneficiary, the exact amount will be refunded to the originating account within an hour of receipt.

What does RTGS stand for?

RTGS stands for Real Time Gross Settlement.

Is there any minimum amount for RTGS transactions?

Yes. RTGS transactions allow the transfer of a minimum amount of Rs. 2 lakh. However, there is no maximum limit.

When should I use RTGS to transfer money?

RTGS is best suitable for transactions that must be settled in real-time, and that have a minimum amount of Rs. 2 lakh.

What is RTGS?

RTGS is a funds transfer system that enables immediate and final settlement of high-value transactions in real-time.

How does RTGS differ from other payment systems like NEFT or IMPS?

Unlike NEFT (National Electronic Funds Transfer) and IMPS (Immediate Payment Service), which operate in batches or at scheduled intervals, RTGS settles transactions individually and in real-time.

How does RTGS ensure real-time settlement of funds?

RTGS achieves real-time settlement by processing and settling transactions individually, without netting or offsetting against other payments. This ensures immediate availability of funds to the recipient.

What types of transactions are typically processed through RTGS?

RTGS is primarily used for high-value and time-critical transactions such as interbank transfers, large business payments, securities settlements, and government transactions.

Are there any limitations or drawbacks of RTGS transactions?

One limitation of RTGS is that it is typically meant for high-value transactions, so there may be a minimum transaction threshold. Additionally, RTGS may have limited operating hours, usually aligned with banking business hours.

How long does it take for an RTGS transaction to be processed?

RTGS transactions are processed and settled instantly, usually within a few minutes of initiation.

Can individuals use RTGS for personal transactions, or is it mainly for businesses?

While RTGS is commonly used by businesses for large-value payments, individuals can also utilize it for personal transactions if they meet the minimum transaction value requirement set by the bank.

Are there any fees associated with RTGS transactions?

Banks may charge a nominal fee for processing RTGS transactions. The fee amount can vary, so it’s advisable to check with your bank for specific details.

Can RTGS transactions be reversed or canceled once initiated?

Once an RTGS transaction is processed and settled, it is considered final and irrevocable. Therefore, it cannot be reversed or canceled. It’s essential to double-check the transaction details before initiating an RTGS transfer.

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