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What is Real Time Gross Settlement (RTGS)? Research Team | Posted On Sunday, February 22,2009, 03:36 PM

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What is Real Time Gross Settlement (RTGS)?



Real Time Gross Settlement (RTGS) is an internationally accepted system to reduce the settlement risk. It is the centerpiece of an integrated payment system. The settlement happens simultaneously for delivery of payments in real time for full value of each payment. RTGS was introduced in India in March 2004. The system permits banks to give electronic instructions to transfer funds from their account to that of another bank. Under this system payment happens only if there is transfer of settlement balances between accounts at the Reserve Bank of India. All payments settled under Real Time Gross Settlement are same within same day. The RTGS system is maintained and operated by the Reserve Bank of India (RBI). In real time gross settlement system (RTGS), both processing and final settlement of funds transfer instruction takes place at the same time and continuously. Transfer of funds is made individually and successively on a gross basis. As it is a real time settlement system, final settlement takes place continuously provided that a payee bank has adequate covering balance.

Advantages of RTGS system:

  • Individual and sequential settlement in RTGS makes it easier to ensure unconditional,irrevocable and finality of settlement.
  • Due to elimination of time lag in settlement, the risk that debtor might fail is significantly reduced.
  • Development in information technology has made RTGS feasible, easier and less costly to build and operate.

RTGS Membership

There are 4 types of membership in RTGS such as Type A, B, C and D

Type "A" Membership

All Scheduled banks, including scheduled co-op. banks are eligible for Type "A" membership and they are permitted to do all types of transactions, including customer-based transactions. Each of them will have a Participant Interface (PI). They are also eligible for Intra-day liquidity support from the RBI.

Type "B" Membership

All Primary dealers are eligible for Type "B" membership and they are allowed to execute all types of RTGS transactions excluding customer-based RTGS transactions. All of them have Participant interface and are eligible for intra-day liquidity support from RBI

Membership Type "C"

A bank or a Primary Dealer, operating in Call Money Market and maintaining one or more Current Accounts in the Deposit Accounts Department of RBI, Mumbai are eligible to get Type "C" membership. They don’t have Participant Interface (PI) and are not eligible for Intra-day Liquidity support from RBI. They will deal through Sponsor bank that is Type "A" member, only one sponsor bank permitted at a time.

Type "D" Membership

All other clearing entities excluding Type A, B, C members are eligible to get membership in Type "D". The entire member will have Net Settlement Interface software from RBI and they are eligible to submit Multilateral Net Settlement batches (MNSBs) for settlement, and will receive notifications, including broadcast.

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