RTGS in a bank stands for Real-Time Gross Settlement, a system for transferring funds electronically in real-time and on a gross basis.
In simpler terms, RTGS is a system where money transfers happen immediately and individually. This means each transaction is settled one-by-one, without being grouped or netted with other transactions. This provides a fast and secure method for large value fund transfers.
Here's a breakdown of key aspects:
- Real-Time: The transfer happens instantaneously, without any waiting period.
- Gross Settlement: Each transaction is settled individually. There's no batching or netting of transactions.
- Fund Transfer: This system is used for transferring money between banks.
Key Characteristics of RTGS:
- High-Value Transactions: Typically used for large-value transactions where immediate clearing is crucial.
- Irrevocable: Once processed, RTGS transactions are final and cannot be reversed.
- Bank-to-Bank Transfers: RTGS facilitates transfers between banks, which in turn transfer the funds to the intended recipient.
- Secure: It's considered a secure method of transferring funds due to its real-time and individual settlement nature.
Example:
Imagine Company A needs to pay Company B a substantial amount of money immediately. Company A can initiate an RTGS transfer through their bank. The bank will then transfer the funds to Company B's bank in real-time, and the transaction is settled individually.
Contrast with NEFT:
It's important to distinguish RTGS from NEFT (National Electronic Funds Transfer). While both are electronic fund transfer systems, NEFT settles transactions in batches at specific times, while RTGS settles transactions individually and continuously. RTGS is generally used for larger amounts, while NEFT is suitable for smaller transactions.
