The acronym ‘RTGS’ stands for Real-Time Gross Settlement, which can be defined as the continuous (real-time) settlement of funds individually on an order by order basis (without netting).
‘Real Time’ means the processing of instructions at the time they are received rather than at some later time.’ Gross Settlement’ means the settlement of funds transfer instructions occurs individually (on an instruction-by-instruction basis). Considering that the fund’s settlement takes place in the books of the Reserve Bank of India, the payments are final and irrevocable.
Although they serve similar purposes, there are some key differences between the two:
1. Timing: RTGS operates on a real-time basis, which means that transactions are processed immediately and settled individually as soon as they are initiated. On the other hand, NEFT operates in batches and settles transactions in fixed time slots called settlement cycles. As a result, RTGS allows for faster transfer of funds compared to NEFT.
2. Transaction Limits: In RTGS, there is usually no lower limit set for the amount to be transferred, while the minimum amount for NEFT transactions is typically set by the banking institution. RTGS also has a higher upper limit for transactions compared to NEFT.
3. Cost: Both RTGS and NEFT charge fees for fund transfers, but the charges can vary depending on factors such as the amount being transferred and whether it is an inward or outward transaction. The charges for RTGS tend to be higher than those for NEFT due to its real-time nature.
4. Settlement Process: RTGS ensures 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.
It’s important to note that both systems have their own benefits and limitations depending on your specific requirements. It’s advisable to consult with your bank or financial institution to determine the most appropriate system for your needs.
Also Read: Fundamentals of Branch Accounting