RTGS - Real Time Gross Settlement

What does RTGS mean?

'RTGS' means Real Time Gross Settlement where bank to bank money transfer takes place on "real time" and "gross" basis. 'Real Time' means the instructions are processed at the same time they are received and ‘Gross Settlement' means the settlement of funds transfer instructions occurs individually (on an instruction by instruction basis). These transactions are settled as soon as they are processed. Once processed, payments are final and irrevocable.

There is no physical exchange of money; the central bank makes adjustments in the electronic accounts of Bank A and Bank B, reducing the amount in Bank A's account and increasing the amount of Bank B's account by the same. The RTGS system is suited for low-volume, high-value transactions. It lowers settlement risk, besides giving an accurate picture of an institution's account at any point of time. Such systems are an alternative to NEFT.

How is RTGS different from NEFT?

NEFT is an electronic fund transfer system based on Deferred Net Settlement (DNS) which settles transactions in batches. In NEFT, the settlement takes place when all the transactions till a particular cut-off time are received and are netted (payable and receivables) whereas RTGS transactions are settled individually.

What is the procedure of money transfer through RTGS?

Activation: The facility for making third-party payment using Internet banking should be activated for conducting RTGS transactions. The RTGS transfer of fund can also be carried out by submitting the remittance form at the remitter's bank branch.
Beneficiary: The person to whom the payment is to be made needs to be added as a 'beneficiary' and his bank account details. These include the name of the beneficiary account holder, account number, bank and branch name, and the IFSC code of the crediting bank branch.
Processing: The bank requires 12-24 hours for authenticating the details of the receiver. After this is done, sum is transferred to the specified account.
Transfer: Select the type of transfer option (NEFT or RTGS), beneficiary name, amount, and the reason/description of transfer. On submission of the details and the security password, the instruction is processed.
Under normal circumstances the receiving branches are expected to receive the funds in real time as soon as funds are transmitted by the remitting bank. After that within two hours of receiving the message the bank has to credit the beneficiary’s account.
The sending bank gets a message from the Reserve Bank that the amount has been credited to the receiving bank. Based on this the remitting bank sends an acknowledgement to the remitting customer that money is delivered. In case the money is not credited on the beneficiary’s account, the crediting bank would have to return the money to the debiting bank within 2 hours. Once the amount is returned, the original debit entry in the customer's account is reversed.