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Real Time Gross Settlement System (RTGS)

RTGS is a large value funds transfer system whereby financial intermediaries can settle interbank transfers for their own account as well as for their customers. The system effects final settlement of interbank funds transfers on a continuous, transaction- by-transaction basis throughout the processing day. The system went ‘live’ on March 26, 2004.

The acronym “RTGS” stands for Real Time Gross Settlement RTGS system is a funds transfer mechanism where transfer of money takes place from one bank to another on a “real time” and on “gross” basis. This is the fastest possible money transfer system through the banking channel. Settlement in “real time” meanspayment transaction is not subjected to any waiting period. The transactions aresettled as soon as they are processed. “Gross settlement” means the transaction issettled on one to one basis without bunching with any other transaction. Considering that money transfer takes place in the books of the Reserve Bank of India, the payment is taken as final and irrevocable.

The RTGS system is primarily for large value transactions. The minimum amount to be remitted through RTGS is Rs.1 lakh. There is no upper ceiling for RTGS transactions. RTGS will eliminate settlement risk in the case of interbank and high value transactions.

Banks could use balances maintained under the cash reserve ratio (CRR) instead of the intra-day liquidity (IDL) to be supplied by the central bank for meeting any eventuality arising out of the real time gross settlement (RTGS). The RBI has fixed the IDL limit for banks to three times their net owned fund (NOF).

The IDL will be charged at Rs 25 per transaction entered into by the bank on the RTGS platform. The marketable securities and treasury bills will have to be placed as collateral with a margin of five per cent. However, the apex bank will also impose severe penalties if the IDL is not paid back at the end of the day.

The system has also stabilised over the years and has been witnessing increased coverage in terms of bank branches and transaction volume.The volume of RTGS (Real Time Gross Settlement System ) transactions is increasing rapidly. RTGS settled 1.94 million transactions in the month of March 2009 as against 0.72 million transactions in March 2008. Customer transactions settling in RTGS presently constitute 89 percent of total RTGS transactions and are growing...Read more

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