Payment Rail Systems
Karthikeyan Sundaram
Karthikeyan Sundaram
May 25, 2024

How RTGS transforms High-Value Transactions in India

In this article, we explore the RTGS (Real-Time Gross Settlement) payment system in India. We'll discuss its key features, benefits, and how it facilitates secure, real-time high-value transactions. Learn how RTGS enhances payment efficiency and plays a critical role in India's financial infrastructure.
How RTGS transforms High-Value Transactions in India

RTGS is one of the most popular payment settlement systems in India, used for both offline and online money transfers. Real-Time Gross Settlement (RTGS) was launched in 2004 by the Reserve Bank of India. It is a system that performs continuous real-time fund transfers. 'Real-time' means that the instructions are processed immediately when received, without any delay. 'Gross settlement' means that fund transfer instructions are handled individually.

This money transfer technique is primarily meant for large-value transactions. The Reserve Bank of India has waived charges for RTGS transactions to boost its popularity among citizens. About 1,40,000 bank branches are RTGS-enabled in the country.  The system is available on all days on 24x7x365 basis. There is real time transfer of funds to the beneficiary account.

RTGS Transfer Process, Advantages and Limitations 

RTGS is one of the most widely used payment settlement systems in the country, suitable for both offline and online money transfers.

Features and Benefits of RTGS

  • It is a safe and secure way of transferring funds.
  • There is no maximum limit for RTGS transfers through bank branches.
  • Real-time fund transfers to beneficiary accounts.
  • Funds can be transferred on all days.
  • No physical cheque or demand draft is required.
  • Eliminates the risk of loss/theft of physical instruments and fraudulent encashment.
  • Transactions can be initiated from home or workplace using internet banking.
  • Funds can be transferred without any fees or charges.
  • RTGS transactions are legally backed.

Transaction Limits for RTGS

The minimum amount you can transfer via RTGS is Rs. 2 lakh. There is no upper limit for transfers made through bank branches. However, for internet banking transfers, the limit is generally Rs. 25 lakh, though it may vary across banks. Online RTGS transactions can be done free of charge.

Imagine two businesses, FreshFruits Ltd. and GreenGrocers Pvt. Ltd. FreshFruits Ltd. needs to pay GreenGrocers Pvt. Ltd. for a large shipment of fresh produce. Here’s how the payment process works using RTGS in India:

  • Initiation: FreshFruits Ltd. initiates a payment to GreenGrocers Pvt. Ltd. through its bank, Bank A, via RTGS.
  • Bank A Processing: Bank A verifies if FreshFruits Ltd. has sufficient funds in its account. If everything is in order, Bank A sends the payment instruction to the RTGS system.
  • RTGS Processing: The system processes the payment in real-time. It ensures that the transaction is secure and that Bank A has sufficient liquidity to cover the payment.
  • Settlement: Once the checks are completed, the payment is settled instantly. The funds are transferred from Bank A to Bank B, where GreenGrocers Pvt. Ltd. holds its account.
  • Confirmation: GreenGrocers Pvt. Ltd. receives the payment in its account at Bank B immediately. Both businesses receive confirmation of the transaction.

Disadvantages of RTGS

Despite its advantages, RTGS has some drawbacks. The system typically operates majorly during banking hours, limiting its availability for urgent transactions outside these times. Additionally, the minimum transaction limit can be high, making it less suitable for smaller payments. RTGS transactions can also be relatively costly due to the high fees associated with processing large-value transfers through banks. Moreover, the real-time processing nature of RTGS means that once a payment is made, it cannot be reversed, which requires businesses to be extremely cautious when entering transaction details to avoid errors.

RTGS in India facilitates secure and efficient high-value transactions, greatly benefiting businesses with its reliable and quick settlement process.