A guide to RTGS payment - Definition, features, benefits, and challenges
20 September, 2024
Synopsis
RTGS stands for Real-Time Gross Settlement.
RTGS is a banking system used to transfer funds electronically on a real-time basis.
Its use is more common for interbank funds transfers of larger amounts.
Every RTGS payment is settled individually and in full. There is no offsetting, netting, or grouping with other transactions.
The world has moved to modern banking facilities. As a result, the importance of ensuring these transactions are secure has increased. The Reserve Bank of India (RBI) offers RTGS (full form - Real-Time Gross Settlement), one of the most reliable fund transfer methods, making it easier for financial institutions to process high-value transactions. The RTGS payment method transfers funds between different bank accounts, with every transaction settled individually and on a real-time basis.
Understanding RTGS and its features, benefits, and challenges is essential for financial professionals, businesses, and individuals who engage in large-value financial transactions. This blog teaches you about what RTGS is, its key features, uses, working, benefits, limitations, and more to help you make well-informed financial management decisions.
Definition of RTGS
RTGS (full form - Real-Time Gross Settlement), as the name suggests, is a method used for fund transfers. This type of transfer takes place from one bank to another on a “real-time” and “gross” basis. This means transactions are settled as soon as they are processed (real-time), and each transaction is settled individually without being combined with other transactions (gross).
RTGS differs from National Electronic Funds Transfer (NEFT), cheque transfers, bank credit transfers, wire transfers, etc. Other payment systems settle transactions in lots at the day’s end, but RTGS settles them individually. As a result, your funds are transferred immediately and ready for use instantly.
RTGS bank transfer is used more for interbank transfers and large business payments where the transaction amount is high and immediate settlement is required. The minimum amount you can transfer via this mode is ₹2 lakh with no upper limit.
RTGS is also a transparent payment process. The sender and the recipient is immediately informed of the transaction’s status. This feature reduces uncertainties or potential risks.
Key features of RTGS
Real-time online fund transfer
RTGS means real-time. So, it is the best and most reliable fund transfer method to transfer funds immediately. There are no long processing times or delays in the payment system.
Ideal for high-value transactions
RTGS fund transfer is immensely popular because it allows high-value transactions. The minimum amount you can send through the payment system is ₹2 lakh. It is the safest and most reliable option for businesses, merchants, vendors, and other professionals who make such high-value transactions.
Safe and secure
Most people prefer using RTGS payments because it is one of the safest fund transfer methods available today. This security and reliability are due to the backing of India’s Central Bank, RBI. The RBI makes sure transactions are 100% legal, and the server through which the transfers are made is strong and secure. It cannot be attacked by even the most advanced hackers.
Immediate clearing
Unlike NEFT, where the transfer time can be longer, RTGS is a quick settlement method. The payment is immediately cleared from the sender’s end and reflected in the beneficiary’s bank account within 30 minutes. The payment cannot be reversed as it is settled as soon as the sender completes the transaction at their end. If there is a problem in crediting the beneficiary’s account, the beneficiary’s bank returns the money to the sender’s bank within two hours.
Funds are credited individually and on a gross basis
This feature of RTGS is an important one. The payment method credits funds on a one-on-one basis. There is no third party. The money is transferred from the sender’s account to the receiver’s account.
Operational six days a week
RTGS bank transfers can be made between operational hours, which are generally from 8:00 AM to 4:00 PM, Monday to Saturday, excluding the 2nd and 4th Saturdays of the month.
Benefits of RTGS
Speed and efficiency
RTGS enables immediate transfer of funds, making it ideal for urgent transactions. This speed enhances overall economic efficiency.
Lowered risk of fraud
Once a transaction is processed through RTGS, it is final and cannot be changed. Thus, the chances of fraud are low. You can be more confident in the payment system.
Reduced settlement risk
Since transactions are settled in real-time, there is less risk of a payment default than delayed settlement systems.
Improved liquidity management
As banks know their real-time cash position, they can better manage their liquidity. This can help to use available funds optimally.
Improved security
RTGS systems use strong security measures to protect against fraud and cyber threats, ensuring secure transactions.
High-value transactions
RTGS is particularly useful for high-value transactions that require immediate and assured settlement. This is crucial for high-value commercial transactions and interbank settlements.
Reduction in cybersecurity concerns
RTGS bank transfer does not expose critical information. As a result, the chances of cybersecurity dangers like data theft are reduced.
Regulated transaction charges
The RBI legally backs every RTGS transaction and has set a limit on the transaction charges. Thus, you are always aware of how much you need to pay for the transaction.
Lower settlement times
RTGS systems improve the overall efficiency of the payment system by reducing the time taken to settle transactions. This results in faster circulation of money in the economy.
Transparency
RTGS systems provide real-time transaction data, enhancing transparency and enabling better supervision by regulatory authorities.
Operational six days a week
RTGS bank transfers can be made anytime from 8:00 AM to 4:00 PM, Monday to Saturday, excluding the 2nd and 4th Saturdays of the month.
How does RTGS work?
This section will help you understand how RTGS works. The process goes through different steps, as explained below:
Initiation
The first step in an RTGS payment is transfer initiation, which starts when the sender enters the receiver’s bank details, account number, and transfer amount.
Verification
After the transfer is initiated, the bank verifies if you have a sufficient balance in your bank account to meet the requirements of the transfer.
Role of central bank
Next, the central bank is informed that acts as an intermediary between the two parties.
Transfer in real-time
The central bank verifies the funds and responds instantly to transfer the funds from your account at the central bank to the receiver’s bank account. The time taken for this verification and transfer is usually a few seconds or minutes.
Beneficiary bank update
The central bank informs the receiver’s bank about the incoming funds through a notification message.
Completion
The receiver’s bank receives the amount sent by the sender. The sender and receiver get a message confirming the transaction’s completion.
An important step in RTGS is the transfer initiation. Here are the different ways to initiate RTGS transfers:
Mobile banking apps
You can initiate an RTGS transfer using your bank’s mobile app. It is the fastest way to start a transfer from anywhere, at any time. These apps are easy to use and let you complete RTGS transfers on the go using your mobile internet.
Internet banking
The other way to initiate an RTGS transfer is by logging in to your account via Internet banking. After logging in, select the RTGS option and enter the beneficiary’s details, amount, and other necessary details to proceed. You will have to add the beneficiary before payment transfer initiation.
Bank branch
You can visit your bank’s branch to request an RTGS transfer if you are not comfortable with technology. The bank’s staff will assist you in filling out the required form and verifying the necessary details before processing the transfer on your behalf.
To complete an RTGS transaction successfully, you must have the following information.
The payee or beneficiary’s name as in the bank account
The payee or beneficiary’s account number
The payee or beneficiary’s bank’s Indian Financial System Code (IFSC)
The payee or beneficiary’s bank name and branch
RTGS vs NEFT - How is their working different?
Many banking users consider RTGS and NEFT to be similar. While they are both electronic fund transfer methods, there is a crucial difference in how they work. NEFT transactions are processed in batches or at scheduled intervals. RTGS transactions, on the other hand, are processed continually on a transaction-by-transaction basis.
Challenges of RTGS
Although RTGS has many benefits, some issues exist -
Minimum amount
Your transaction amount must be a minimum of ₹2 lakh to initiate an RTGS transfer.
Irreversible transactions
You cannot cancel or reverse an RTGS transaction. Thus, it is vital for you to have accurate beneficiary details, including the full name, account number, IFSC code of the bank branch, etc. You must also enter the account number with extreme caution and attention. Bank accounts only
RTGS transactions are only possible between Indian bank accounts. You cannot use it for cash transfers or international payments.
System dependence
The sender and recipient’s bank systems play an important role in the speed and success of the transaction. Any technical issues in their system can delay the payments.
Accessibility
RTGS services are not available at all banks and their bank branches. This can make it hard for consumers.
Liquidity requirements
To complete an RTGS transfer in real time, the bank must have adequate funds in its account.
Operational challenges
RTGS services are vulnerable to cyber-attacks or system failures.
Transaction cost
You have to pay a transaction fee of ₹25 + taxes in the case of amounts between ₹2 lakh and ₹5 lakh. Additionally, you need to pay a fee of ₹50 + taxes for amounts above ₹ 5 lakh.
RTGS is an important part of the Indian financial system, offering speed, security, and reliability for high-value transactions. It is the ideal fund transfer method for businesses that require instant access to funds or time-sensitive payments. The minimum amount you can transfer in one transaction is ₹2 lakh. You and the receiver are instantly notified of the transaction’s status. The service is available 24/7, including weekends, public and bank holidays. Thus, you can use it whenever you desire.
Despite the benefits, many worry about using the service. This is because it is a high-value transaction fund transfer method, and the transactions are irreversible. You must be very cautious while entering the details and submitting the initiation request. Understanding RTGS’s meaning, features, workings, benefits, challenges, and limitations can help professionals, businesses, and individuals complete high-value transactions securely and efficiently.
HDFC Bank provides RTGS facilities to SMEs. The funds are transferred in real time without any waiting.
Disclaimer: *Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.
