Real-Time Gross Settlement (RTGS)

Real-time Gross Settlement meaning implies an important term in the banking sector. It implies a specific type of funds transfer mechanism allowing instantaneous transfer of the given amount of money or securities.

RTGS refers to the set of continuous techniques of settling payments individually without netting debts with the help of credits throughout the books of some central Bank. Upon completion, RTGS payments tend to be final and irrevocable. In a number of nations out there, the given systems are managed as well as run by the central banks.

How RTGS Works?

Upon hearing the term ‘real-time,’ it implies that the settlement occurs as soon as the same is received. Therefore, in simpler terms, it can be implied that the transaction gets settled in the receiving bank instantly after the same is transferred from the respective sending bank. By the term ‘gross settlement,’ it is implied that the transactions get handled as well as settled individually. Therefore, multiple transactions are not grouped or bunched together. This serves to be the Basis of real-time gross settlement mechanism.

The RTGS system is typically utilized for fund transfers involving large-value interbank. The given system is operated as well as organized by the central bank of the country. The given transfers are known to require instant and complete form of clearing. Once the transactions get settled, the same cannot be reversed.

The first system is known to resemble the RTGS system that was represented by the Fedwire system of the United States. The given system was launched in the year 1970. The given system served to be the evolution of some former telegraph-based system. The same was utilized for transferring funds on an electronic mode between the Federal Reserve banks in the United States of America. In the year 1984, France and the United Kingdom had both implemented systems of the RTGS type.

RTGS is known to lessen the overall settlement risk. This is referred to as delivery risk. As interbank settlement is known to occur in real-time across the day –rather than all together at the day’s end, this helps in eliminating the overall risk of some lag in the completion of a transaction. RTGS is known to mostly incur some higher charge in comparison to the processes involving net payments.

Benefits of Using the RTGS System

RTGS systems are known to be increasingly utilized by banks all around the world. The given system is known to help in minimizing the overall risk of high-value payment settlements amongst leading financial institutions. While financial institutions and companies dealing with confidential financial data usually tend to feature higher levels of security for protecting funds and information, the overall nature and Range of online threats tend to be constantly evolving. RTGS systems help in allowing a smaller window with relation to time when it comes to dealing with critical information.