What is real time gross settlement?

Answer 1

Real Time Gross Settlement System (RTGS)

RTGS is a large value funds transfer system whereby financial intermediaries can settle interbank transfers for their own account as well as for their customers. The system effects final settlement of interbank funds transfers on a continuous, transaction- by-transaction basis throughout the processing day.

The statistics of transactions for the month of March 2004 shows that in the interbank market transactions involving 45000 instruments and aggregating Rs 1,79,000 crore were settled. High value instruments (3,17,000) settlement aggregated Rs 2,74,000 crore. However, settlement of MICR instruments (145 lakhs) accounted for only Rs 54,000 crore. RTGS will eliminate settlement risk in the case of interbank and high value transactions.

The system went ‘live’ on March 26 with State Bank of India, HDFC Bank, Standard Chartered Bank, and Saraswat Co-operative bank. The Reserve Bank of India expects 120 scheduled commercial banks and primary dealers to become part of the real time gross settlement system (RTGS) by June 2004. ICICI Bank, IndusInd Bank, BNP Paribas, Bank of Baroda, Bank of India, Canara Bank, Central Bank of India, Corporation Bank and Union Bank of India are likely to join shortly.

Banks could use balances maintained under the cash reserve ratio (CRR) instead of the intra-day liquidity (IDL) to be supplied by the central bank for meeting any eventuality arising out of the real time gross settlement (RTGS). The RBI has fixed the IDL limit for banks to three times their net owned fund (NOF).

The IDL will be charged at Rs 25 per transaction entered into by the bank on the RTGS platform. The marketable securities and treasury bills will have to be placed as collateral with a margin of five per cent. However, the apex bank will also impose severe penalties if the IDL is not paid back at the end of the day.

Real Time Gross Settlement: Helping Reduce Risks
With the rapid increase in competition amongst the numerous players in the financial
arena and changing government policies and financial innovations, it has become
increasingly important that financial institutions have systems which are robust and up to
the mark to support the demanding transaction levels. Some such systems are the
Clearing, Payment and Settlement Systems which take care of large-value inter-bank
payments, foreign exchange clearing and settlements, securities clearing and settlements
and derivative clearings.
The last decade has seen a rapid expansion in the volume of large value, inter-bank
transaction payments. Take the case of CHIPS or Clearing House Inter Bank Payment
System. CHIPS is a premier, bank-owned payment systems for clearing and settling high
value payments. Over the period 1991-2003 there has been a 74% increase in number of
average daily transactions through CHIPS. The number of total transactions has also seen
a similar increase (72%) over the same period. The average daily dollar transaction
amount has increased from $865 billion in 1991 to $1.3 trillion in 2003.

Answer 2

It is a term used to settle the account on real time basis. For example, all the trades are settled on real time basis and requisite margin is called for wherever necessary.

Answer 3

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