RTGS, or Real Time Gross Settlement, is a secure fund transfer method where transactions are processed instantly and settled one by one. The RTGS system enables real-time, high-value transfers between banks, ensuring immediate and final settlement without batching or delays.
What is an example of a RTGS?
A real-time gross settlement (RTGS) system example is when a customer requests their bank to transfer funds to another bank, and the transfer occurs instantaneously. In contrast, if the transfer were done through an automated clearing house (ACH), it might take several days to complete.
How does RTGS work?
Here’s a step-by-step breakdown of how RTGS (Real Time Gross Settlement) works:
1. Initiation
The sender starts the RTGS transfer by entering the recipient’s bank details, account number, and transfer amount.
2. Verification
The sender’s bank checks if there’s sufficient balance in the account to process the transfer.
3. Central Bank’s Role
Once verified, the transaction is routed through the central bank, which acts as the intermediary between both banks.
4. Real-time Transfer
The RTGS system settles the transaction instantly by debiting the sender’s bank and crediting the recipient’s bank—usually within seconds or a few minutes.
5. Notification to Beneficiary Bank
The central bank sends a confirmation message to the recipient’s bank regarding the fund credit.
6. Completion
The beneficiary bank credits the amount to the receiver’s account. Both sender and receiver get confirmation messages, marking the transaction as complete.
Why is real time gross settlement important
RTGS offers a safe and secure way of making high-value transactions from one bank to another. This electronic transfer mode reduces the chances of theft or loss of traditional physical transfer options like cheques and DDs. In India, you can make RTGS transfers for funds over Rs. 2 lakh. Since there is no maximum cap, you can transfer large sums of money safely.
Additionally, RTGS transactions are individually processed in real-time without any delay. This ensures instant receipts, making them ideal for those who require immediate deposits. The system is operational on all days of the week, including Sundays and holidays, allowing users to make instant transfers via their internet banking portals whenever needed.
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Features of RTGS
- Safety and security: RTGS (Real-Time Gross Settlement) is highly secure, reducing risks of loss, theft, or fraud compared to physical instruments like checks or demand drafts
- No maximum limit: Transactions via RTGS generally do not have a maximum limit, accommodating both small and large transfers efficiently
- Real-time transfer: Ensures immediate credit to the recipient's account, enhancing transaction efficiency.
- Seven days a week: Operates every day, including weekends and holidays, providing continuous access and convenience for fund transfers
- No physical instruments: Entirely electronic, eliminating the need for checks or demand drafts, streamlining the process, and reducing risks associated with physical documentation.
- Reduced risk: Minimizes the chances of instruments being lost, stolen, or fraudulently cashed, ensuring higher security
- Convenience of internet banking: Can be initiated from home or office via internet banking, offering flexibility and ease of use
- No fees or charges: Many banks provide RTGS services free of charge, making it a cost-effective method for fund transfers
- Legal backing: RTGS transactions are legally recognized and regulated, ensuring users' financial transactions are protected by law, enhancing trust and assurance
Benefits of Real Time Gross Settlement (RTGS)
Rapid and Efficient Transactions
RTGS facilitates instant fund transfers, making it perfect for time-sensitive payments. This quick processing boosts the overall efficiency of financial transactions in the economy.
Minimized Fraud Risk
Once an RTGS transaction is completed, it is irrevocable, reducing the likelihood of fraudulent activities. This finality fosters greater trust in the payment system.
Decreased Settlement Risk
With real-time settlement, RTGS eliminates the delays associated with traditional payment systems, significantly lowering the risk of payment defaults.
Enhanced Liquidity Management
Real-time visibility of cash positions allows banks to manage their liquidity more effectively, enabling optimal utilization of available funds.
Robust Security Measures
RTGS systems employ advanced security protocols to safeguard transactions, protecting against fraud and cyber threats for secure fund transfers.
Ideal for Large-Value Transactions
RTGS is designed for high-value payments that demand immediate and guaranteed settlement, making it essential for significant commercial deals and interbank transfers.
Reduced Cybersecurity Threats
RTGS transactions minimize the exposure of sensitive data, thereby lowering the risk of cybersecurity issues such as data breaches.
Regulated Transaction Fees
Backed by the Reserve Bank of India (RBI), RTGS transactions have capped fees, ensuring transparency and predictability in the cost of each transfer.
Faster Settlement Times
By enabling near-instantaneous transaction settlements, RTGS enhances the efficiency of the payment ecosystem, accelerating the flow of money in the economy.
Increased Transparency
RTGS provides real-time transaction updates, improving transparency and allowing regulatory authorities to monitor activities more effectively.
Availability Six Days a Week
RTGS services are available from 8:00 AM to 4:00 PM, Monday through Saturday, except on the 2nd and 4th Saturdays of the month, offering flexibility for users.
How to make RTGS transactions in India
Real Time Gross Settlements in India can be made both online and offline. Depending on your preference, you can opt to make RTGS transfers via any one of the following channels:
Through net banking: You make RTGS transfers online by logging into your bank’s net banking portal or mobile app. You have to first add the payee as a beneficiary to initiate the transfer.
Through bank branch: If you have not registered for internet banking, you can visit the nearest bank branch and transfer funds using RTGS. You simply need to fill out the RTGS form with beneficiary details to initiate the fund transfer.
What information is necessary to begin an RTGS transaction?
To initiate an RTGS remittance, the sender must provide the bank with the following details:
- Amount to be transferred
- Account number to be debited
- Beneficiary bank name and branch
- IFSC code of the receiving branch
- Beneficiary customer's name and account number
- Optional: Sender to receiver information
- Optional: Sender and Beneficiary Legal Entity Identifier (for eligible transactions)
Understanding real time gross settlement limits in India
As per the RBI’s mandate, the minimum amount that can be transferred via RTGS is Rs. 2 lakh. There are no upper limits set by the RBI. However, banks have the freedom to set their own maximum limits. Most banks cap RTGS transactions at Rs. 25 lakh for the internet banking mode. This maximum limit can vary from one bank to the other.
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Things to remember when initiating Real-Time Gross Settlement transfers
Here are a few things you should keep in mind before initiating a fund transfer via RTGS:
- To make and receive RTGS fund transfers, both the sender’s and beneficiary’s bank should be a part of the RTGS network. You can check the list of RTGS-enabled bank branches on the RBI website prior to initiating the transfer.
- The beneficiary’s bank account needs to be added as a payee to your net banking account before initiating a transfer. Ensure you have accurate details about the beneficiary, including their name, bank account number, and IFSC.
- You can make RTGS transfers 24 hours a day, seven days a week. This includes national holidays and weekends.
- Save the 22-character alphanumeric unique reference number or UTR code generated after every RTGS transaction. This code can come in handy as proof of transaction if there are disputes or discrepancies.
- Once an RTGS transfer is initiated, the beneficiary’s account should receive funds within 30 minutes.
- Be mindful of your bank’s RTGS fees. While the RBI has waived Real-Time Gross Settlement charges from 1st July 2019, some banks do levy a service fee for RTGS transactions made at bank branches. As per the RBI’s mandate, banks cannot charge more than Rs. 25 for transactions in the range of Rs. 2 lakh to Rs. 5 lakh. The cap is set at Rs. 50 for transactions above Rs. 5 lakh.
What Is the Real-time Gross Settlement (RTGS) fee?
The cost associated with real-time gross settlement (RTGS) transactions isn't fixed and depends on various factors. The specific bank or financial institution processing the transaction, the country where it's initiated, and the amount being transferred all play a role in determining the fee. In some cases, the financial institution may waive the fee altogether, making the transaction free for the customer.
RTGS transaction fees in banking
The Reserve Bank of India (RBI) waived processing charges for RTGS transactions starting from 1 July 2019.
To ensure fair pricing, the RBI introduced a standardised framework for banks to follow when charging for RTGS transfers:
Transaction Amount |
Maximum Charges (Excl. GST) |
Rs. 2,00,000 to Rs. 5,00,000 |
Up to Rs. 25 |
Above Rs. 5,00,000 |
Up to Rs. 50 |
That said, actual charges may differ across banks. In most cases, banks do not levy any fees on RTGS transfers made online.
RTGS timings
According to the RBI guidelines, the minimum amount for an RTGS transaction is Rs. 2,00,000, while there is no prescribed upper limit on the transfer amount.
Limitations of RTGS
RTGS transfers are specifically designed for high-value transactions. They can only be used when the transfer amount exceeds the set minimum limit of Rs. 2 lakh, making them ideal for large, time-sensitive fund transfers.
Conclusion
RTGS has transformed the way large-value payments are processed, offering speed, finality, and reduced risk compared to traditional methods. It serves as a vital backbone for the global financial system, supporting the seamless flow of funds that drive economic activity. As businesses and individuals increasingly rely on digital payments, RTGS will continue to play an ever more important role in the financial landscape.
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