RTGS: The real time gross settlement solution is a milestone in the history of Indian payment system. It is the key critical element. It provides the missing link in the process of the setting up of the Integrated payment and settlement system in the country. Now a days, it is the preferred mode of the settlement of large value interbank payments in the world over.
As a settlement process, RTGS minimises settlement risks by settling individual payments in real time in the books of account held at the central bank. Under RTGS, the practically instant settlement ensures fast, secure, final and irrevocable settlement of payment transactions. The real time gross settlement system is designed to provide large value funds transfer and settlement in an on-line real time environment to the banking industry, with settlement on a gross basis. It will enhance competitiveness within the system. It gears up the banks to meet future challenges posed by the external environment. If this system is implemented with due precautions and proper action plan, it will certainly help the Indian Banking Industry to attain global standards.
RTGS is an ultimate in the payment and settlement architecture in any country primarily for online, real time interbank payment and settlement of large value funds. RTGS payment system can also be called as one in which payment instructions between banks are processed and settled individually and continuously throughout the day.
Working of RTGS System
Each participant of the RTGS will be required to open a dedicated settlement account for putting through its RTGS transactions. This account will be an intra-day account i.e. it would be operational only during the course of the RTGS day. The account is to be funded at the start of the day (SOD) from a current account which the participant holds under the present system at Deposit Account Department (DAD), RBI, Mumbai. Balances in the RTGS account at the end of the day of the RTGS day are swept back to participant’s current account. The system enables the participants to place standing instructions with DAD, Mumbai to fund their RTGS account each morning duly specifying an actual amount or percentage of balance to be transferred to the RTGS settlement account every day at SOD.
The system also provides funds to the RTGS account during the day from the participant’s current account. Payment transactions emanating from a participant are ordinarily expected to be settled immediately after they are received which is the essence of the real time system. The RTGS provides maintenance of participant wise payment queues in which payment transactions will be held in first-in-first-out basis. However, to enable the participants to take care of the urgent time-critical payments and to enable more effective funds management, the system allows the participant to assign priorities to the payment messages and thereby enables a particular transaction to be processed before another transaction which was submitted earlier.
Facilities Provided by RTGS :
It facilitates participants :
- 1) View of Transaction : To view their respective transactions held in payment queues, to cancel such transactions and even change their priorities.
- 2) Movement of Funds : Initiates movement of funds between various accounts held by it to optimise funds deployment and economies intra-day liquidity requirements.
- 3) Various Types of Transactions : By providing a wide array of transaction types which can be flexibly deployed to meet varying requirements.
- 4) Types of Interbank Transactions : By providing interbank transactions types which can be used to settle participant’s financial obligations on their own account.
Benefits of RTGS
The RTGS system has all round advantages to the bank, customer and the society at large. These advantages to the various segments of society are as follows :
A) Banks :
- It offers immediate and irrevocable settlement.
- It provides high-value intra-bank and inter-bank funds transfer.
- It provides new opportunities for formulation of innovative products.
B) Customers :
- It provides sophisticated online banking services.
- It offers reliable high-value funds transfer.
- It improves personal image with beneficiary
C) Economy :
- Reduces the Risk : RTGS will reduce the systemic risk that exists in the present settlement systems, like cascading affects on banks due to failure of one bank to meet its settlement commitments.
- Improves Confidence of Outside Agencies : It improves confidence of outside agencies like World Bank in Indian Economy.
- Avoids Settlement Delays : It enables efficient settlements and avoids settlement delays