Real Time Gross Settlement

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Real Time Gross Settlement (RTGS) is an online system for settling transactions of financial institutions, especially banks. RTGS payments are "push" payments, initiated by the paying bank. If Bank A or one of its customers needs to pay $1000 to Bank B or one of its customers, Bank A initates the transaction and Bank B is immediately paid $1000 "electronically" by Bank A. Examples of RTGS systems included CHAPS in the UK and Fedwire in the United States.

Each country has its own RTGS system. As mentioned above, CHAPS is used in the UK and Fedwire in the United States. Below is a listing of countries and their RTGS systems:

United States - Fedwire
Canada - LVTS (Large Value Transfer System)
Australia - RGTS
UK - CHAPS

This "electronic" payment system is normally maintained or controlled by the Central Bank of the country. Here, 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 by $1000 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 systems of settling transactions at the end of the day, also known as the net settlement system such as BACS. In the net settlement system, all the inter-institution transactions during the day are accumulated. At the end of the day, the accounts of the institutions are adjusted. Extending the example above, say another person deposits a check drawn on Bank B in Bank A for $500. At the end of the day, Bank A will have to "electronically" pay Bank B only $500 ($1000 - $500).

The implementation of RTGS systems throughout the world is driven by Central Banks' needs to institute mechanisms to reduce risk in high-value payment systems.

In an RTGS system, transactions are settled across accounts held at a Central Bank on a continuous gross basis. Settlement is immediate, final and irrevocable. Credit risks due to settlement lags is eliminated.

RTGS requires Core Banking to be implemented across participating banks. Any RTGS would employ two sets of queues: one for testing funds availability, and the other for processing debit/credit received from the Integrated Accounting System. All transactions would be queued and submitted for funds availability testing on a FIFO+Priority basis.

In India, it is initiated by RBI (Central Bank of India) and itworks on weekdays form 10:00am to 13:30pm only. Charges of RTGS varies from bank to bank but as mentioned earleir both the participant bank should be having corebanking in place to enter such transaction. All the core banking enabled banks and branches have their own RTGS 11 alphanumeric codes which is to be entred while making transaction along with recipant's account no.