RTGS and NEFT are two banking payment systems used in India that differ in how they process payments. RTGS, which stands for Real-Time Gross Settlement, settles payments on a per transaction basis whereas NEFT (National Electronic Funds Transfer) clears transactions in half-hourly batches. Both are available 24×7×365.
RTGS and NEFT are two bank payment systems prevalent in India and differing in terms of the processing of payments. While RTGS, or Real-Time Gross Settlement, processes each transaction separately, NEFT (National Electronic Funds Transfer) processes transactions in batches at intervals of half an hour.
What Is RTGS?
RTGS means Real Time Gross Settlement. It is an electronic funds transfer system where the transactions are settled on a one-by-one basis and are settled immediately.
By “real time” it means that the transaction instruction gets executed at the time of its receipt, while by “gross settlement,” each transaction gets settled individually. According to RBI, the RTGS transaction payments are final and irrevocable.
The RTGS method is more appropriate when there is the need for transferring relatively larger amounts on a real-time basis.
According to RBI, the lower limit for RTGS is ₹2 lakh, and the RBI does not have any upper ceiling on RTGS.
What Is NEFT?
The full form of NEFT is National Electronic Fund Transfer. NEFT is an electronic fund transfer network that works throughout the nation and is run by the Reserve Bank of India.
NEFT does not provide real-time clearing and settlement of transactions unlike RTGS. Currently, RBI settles NEFT transactions in 48 batches each day of half an hour in duration, although the NEFT system operates round the clock.
The RBI does not have any minimum and maximum limit on NEFT transactions. It depends upon the individual banks to have limits on their NEFT transactions.
Which Is Better: RTGS or NEFT?
Neither system is universally better. The appropriate option depends on the transaction.
Choose RTGS when:
- you need real-time settlement;
- you are transferring ₹2 lakh or more;
- the transaction is time-sensitive;
- you want transaction-by-transaction settlement.
Choose NEFT when:
- you need to transfer a smaller amount;
- you do not specifically require RTGS’s real-time settlement;
- you want a widely available electronic transfer method;
- your bank’s NEFT limits and charges suit the transaction.
The important point is that NEFT is not simply a slower version of RTGS. The two systems use different settlement mechanisms and serve somewhat different transaction requirements.
RTGS vs NEFT Charges
Charges depend on the bank, transaction channel and applicable rules. RBI has prescribed frameworks for certain charges, while banks can offer lower charges or free transfers through particular channels.
For example, RBI’s RTGS framework caps certain outward transaction charges, while inward RTGS transactions should not attract charges under that framework.
Settlement Process
RTGS ensures the immediate and final settlement of funds since each transaction is processed individually in real-time. In contrast, NEFT settles funds in batches during specific time slots throughout the day. This means that while RTGS provides instant confirmation of fund transfers, NEFT may take some time before the recipient receives the funds.
The choice between RTGS and NEFT depends on various factors such as urgency, transaction amount, convenience, and charges involved. If you require immediate transfer of a high-value amount without any delay, RTGS would be more suitable. However, if time sensitivity is not critical or if you need to transfer smaller amounts with lower transaction costs, then NEFT may be sufficient.
Conclusion
Both RTGS and NEFT are highly efficient electronic payment modes in India; however, they are used for varying purposes. RTGS is more appropriate for making high-valued payments and real-time settlements, and NEFT is useful for transactions of various values, considering its 24×7 availability. While RTGS demands a minimum transaction value of ₹2 lakh under RBI guidelines, there is no restriction on the minimum or maximum value of NEFT transactions by RBI, even though individual banks can have their limits.
Also Read: Fundamentals of Branch Accounting
