HISTORY Of RTGS In June 1998, the Reserve Bank of Australia (RBA)implemented

Real Time Gross Settlement (RTGS) With the purpose of achieving easy payments and enhancing

stability in the financial and securities settlements can be completed have changed.

In India this system was launched on March 26, 2004 (on pilot

basis by involving 4 banks) by RBI for large value transactions for banks and their clients.

RBI expects 120 scheduled commercial banks and primary dealers to become part of the real time gross settlement system by June 2004.

Definition of RTGS

RTGS system is a funds transfer mechanism where transfer of money takes place from one bank to another on a “real time” and on “gross” basis.

This is the fastest possible money transfer system through the banking channel.

Settlement in “real time” means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed.

“Gross settlement” means the transaction is settled on one to one basis without bunching with any other transaction.

Advantage & disadvantage of RTGS

Real-time Payment Settlement: Payments settled in real time on a transaction-by-transaction basis, as soon as they are accepted by the system.

No Credit Risk :- There is no credit and settlement risk involved in RTGS systems for receiving participant as each payment transaction is settled instantly.

Predictability of Cash Flows:- RTGS facilitates predictability of cash flows as customers know when their accounts will be debited or credited.

Benefits to Economy : The instant finality of payments ensures fast, secure and irrevocable settlement of major business and financial market transactions

Cont….. The only disadvantage of RTGS systems is the fact

that it requires more liquidity than net settlement systems, as liquidity has to be available for each individual payment.

several way to mitigate this liquidity problem. The system could have rules for how fast payments should be made in the system.

RTGS system and the participants can develop queuing features, and algorithms that calculate the order of which payments should be made in order to get a smooth flow of payments

Timing for RTGSs• The RTGS service window for customer's transactions is

available to banks from 9.00 hours to 16.30 hours on week days and from 9.00 hours to 14:00 hours on Saturdays for settlement at the RBI end. However, the timings that the banks follow may vary depending on the customer timings of the bank branches.