written by Khatabook | August 23, 2021

Real-Time Gross Settlement (RTGS)- Definition & Importance

With the digitalisation of banking transactions, many new receiving and sending money methods have come into place. One such way of transaction in money is RTGS, which stands for Real-Time Gross Settlement. It is a system in which money can be transferred from one bank account to the other instantly. Let us understand the meaning of Real-Time Gross Settlement (RTGS) in detail:

What is RTGS?

It is a process used for the transfer of funds instantly from one bank to another bank. It involves high-value transactions. Real-Time Gross Settlement or RTGS means transaction takes place in “real-time”, that is, the transaction or settlement takes place immediately as per the requester instructions without any delay. And “Gross Settlement'' means that the transactions are settled on a one-to-one basis and not on a deduction of one amount from another or netting-off basis. The RTGS definition as per Investopedia is - "RTGS is the continuous process of settling payments on an individual order basis without netting debits with credits across the books of a central bank".  

What is RTGS in banking terms?

The meaning of RTGS in banking is a real-time fund transfer system for the customers to initiate money transfers from anywhere using online banking services. The customer can also transfer funds using the offline mode where they are required to deposit the money in the bank branch that provides RTGS services and submit a form requesting fund transfer through the RTGS system.

What is the importance of Real-Time Gross Settlement (RTGS)?

The Real-Time Gross Settlement system (RTGS) is an important element in today's banking system in which maximum transactions are performed online. In the fast-moving business environment where time is a major constraint and security of money or funds is a major concern, RTGS provides a fast and secure measure for high-value money transactions. 

What is RTGS transaction?

RTGS fund transfer means the transfer of funds in real-time. It minimises the risk of a breach in customer information and the forgery of funds. With the help of its system, the businessman can quickly transfer a large amount of money within a few minutes from one bank account to another bank account. Hence, the system makes business transactions faster and smooth. 

As the transaction settlement is done almost instantly, the risk involved in the transfer of funds is significantly minimised. The easy, fast, and secure money transfer system is suitable for businesses and a blessing for the economy as a whole. Out of the many Digital India endeavours, Real Time Gross Settlement (RTGS) is one of the significant and appreciable systems.

What is the minimum amount to be transferred using the RTGS system?

The amount to be transferred using the RTGS system shall not be less than Rs 2 Lakh. An amount less than this limit cannot be transferred using the RTGS system, Although any other mode like net banking, national electronic Funds transfer or NEFT etc., can be used. The Real-Time Gross Settlement (RTGS) system is mainly used for high-value transactions. Therefore, there is no upper or maximum limit of the amount of money transferred utilising this system. It means in India, any amount above rupees 2 Lakh can be transferred using the RTGS system.

What are the modes to use the RTGS system?

The customers can transfer the funds from one bank account to another via the RTGS system in the following two ways:

1. Online mode- The customers can use the RTGS service at their comfort in online mode using their mobile and Internet banking.

2. Offline mode- The customers can also transfer the funds using RTGS through offline mode. For this, they need to visit the bank branch that provides the RTGS service and deposit the funds to be transferred in cash and fill up an RTGS request form for RTGS payment.

What information is needed while transferring money using the RTGS system?

To transfer money via RTGS, you need to mention the following information:

1. Name of the beneficiary, the person to whose account the money is to be transferred.

2. Mention the amount you need to transfer.

3. Name of the bank of the receiver or beneficiary of the money.

4. Convey the IFSC code of the bank name of the receiver or beneficiary.

5. Also mention the beneficiary's account number, the person in whose account the money will be transferred.

Also Read: A Complete Guide on Cost Inflation Index

What is the process for RTGS transition?

You can transfer money using this service only after adding a beneficiary. A beneficiary is a person to whom the funds are to be transferred or, in simple terms, the receiver of the money. The fund's transfer under the RTGS system can occur only after 24 hours of adding a beneficiary. The maximum amount that can be transferred without adding a beneficiary is Rs 50,000. 

Follow this step by step procedure to transfer funds using RTGS:

1. Open your net banking account by entering your login username and password.

2. Click on the fund transfer tab from here, and then in select beneficiary type, click on transfer to another bank.

3. Now, you can enter the name of the beneficiary and the account details, namely, the name of the bank, account number and the IFSC code.

4. To confirm, click on add.

5. You will receive a confirmation message on your registered mobile number.

After adding the beneficiary, follow these steps to transfer money via RTGS service:

1. Log into your net banking account and click on the fund transfer tab.

2. From here, select the RTGS option.

3. Choose the name of the beneficiary to whom you wish to transfer the money.

4. Enter the amount that is to be transferred.

5. Check all the information before submitting the request.

Under the RTGS system, the funds are generally transferred or credited to the receiver's account within 30 minutes of submitting the request.

What are the benefits of the RTGS system?

1. The RTGS transactions are safe and secure. The high-value transactions are settled in real-time on a one-to-one basis. Thus, the risk is reduced as compared to other modes of transfer. Also, the RTGS system is legally backed and is controlled by the Reserve Bank of India.

2. There are no geographical limitations in transferring funds within India. The customers can access internet banking on their mobile devices and laptops from anywhere and utilise this service to transfer money to other bank accounts in any country's location.

3. There is no delay in processing RTGS requests, and the funds can be transferred speedily.

4. The service of RTGS can be availed on a 24*7 basis. Thus, the funds can be transferred through online mode using the Real Time Gross Settlement Service even on the weekends and bank holidays. Therefore, the customers can initiate transactions anytime. 

5. There is no upper limit for the amount that can be transferred using this system. Any amount above Rs 2,00,000 can be transferred using RTGS. However, some banks can impose restrictions on the maximum amount transferred using the RTGS service through Net Banking.

What is the difference between National Electronic Funds Transfer (NEFT) and the Real Time Gross Settlement (RTGS)?

The National Electronic Funds Transfer (NEFT) is an electronic system of transferring funds from one bank account to the other. The Reserve Bank Of India regulates it. The NEFT and RTGS both are electronic funds transfer systems, but there are few differences between the two:

NEFT

RTGS 

In NEFT, the transactions are settled batch-wise.

The settlement in the RTGS system occurs on a one-to-one basis.

In NEFT, there is no minimum limit, and any amount as low as Re.1/- can be transferred under this system.

The minimum limit for RTGS transactions is Rs 2,00,000.

In the NEFT, the maximum amount that you can transfer depends on the customer segment and is generally Rs. 10,00,000/-.

There is no maximum or upper limit of funds in the RTGS system.

There is some delay in a settlement in the NEFT system due to the batch processing of transactions. Sometimes it can take up to two working days for the settlement of NEFT transactions.

Under the RTGS system, the transactions are settled instantaneously without any delay of batch processing as soon as the request is submitted.

The NEFT system is preferred for low and minimum value transactions.

The RTGS system is preferable for high-value transactions.

What is Immediate Payment Service (IMPS)?

Immediate Payment Service or IMPS is also a digital payment system introduced by the apex bank of the country, the Reserve Bank of India (RBI) and the National Payments Corporation of India (NPCI). Under this system, the transfer of funds takes place immediately. This service can be availed using internet banking or mobile banking. 

Under this system, the funds can be transferred at any time, as it is available 24 hours and 7 days. You can avail of this service even on public holidays. The settlement takes place on one on one basis. The minimum amount that can be transferred under this system is Rs  1,00,000. Any amount below this is not transferable. The maximum amount transferable under this system within a day is Rs 2,00,000. Immediate Payment Service (IMPS) is a preferable method in times of urgent requirement of funds.

Things to be considered while using the electronic payment system:

Electronic payment systems are convenient and faster methods of sending and receiving money from one bank account to the other. However, some things should be considered while using the services of NEFT, RTGS and IMPS:

1. Charges for funds transfer: The banks levy different charges on different types of transactions. The charges may vary from bank to bank and the amount to be transferred. However, no fee is charged for inward transactions. As per the Reserve Bank of India, for transactions from Rs 2,00,000 to Rs 5,00,000, the fee shall not be more than Rs 24.50, and for transactions above Rs 5,00,000, the fee shall not be exceeding Rs 49.50. The fee amount is exclusive of taxes. The banks may charge a lower amount of fee, but it shall not exceed the given limits. 

2. Time required for settlement: The time for completing the transfer of money from one bank account to another is known as the settlement of the transaction. The settlement time may vary from bank to bank.

3. Goods and Service Tax Charges (GST): The transactions are also subject to GST. The GST charges depend on the amount of funds transferred.

4. Risk of breach of confidential information: The login credentials and passwords of internet banking and mobile banking should be kept secure and confidential. The breach of this information can result in fraud.

Also Read: How to write a Bank Verification Letter for Various Banks?

Conclusion

With the Indian government’s endeavour to enable maximum financial transactions through online mode, money transfer has become faster, safer and more accessible. It is easy to track online transactions, and therefore, it has increased the transparency in the banking system. The Real-Time Gross Settlement (RTGS) is helpful for businesses. A fast-growing economy also needs a faster money transfer system. RTGS payments can be made using net banking and mobile banking without the use of cheques or drafts. Hence, RTGS is a safe system for transferring higher amounts.

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Frequently Asked Questions

1. Can I transfer Rs 1,00,000 using the RTGS system?

No, RTGS can be only used for transactions above Rs 2,00,000.

2. Is it possible to do an RTGS transaction for a future date?

No, the RTGS transactions cannot be undertaken to be performed on a future date.

3. Which one is the faster mode of transaction- RTGS or NEFT?

RTGS is the faster mode of the transaction as compared to the NEFT.

4. What is the maximum amount of money that can be sent or received using the RTGS system?

RTGS can transfer any amount above Rs 2,00,000, and there is no maximum limit for RTGS transactions.

5. Who is the regulator of the RTGS system?

The RTGS system is regulated by the Reserve Bank of India (RBI). 

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