A Guide To RTGS Payment for Businesses: Definition, Features, Benefits and Challenges

The Reserve Bank of India (RBI) offers RTGS (full form - Real-Time Gross Settlement), one of the most reliable fund transfer methods, making it easier for financial institutions to process high-value transactions. The RTGS payment method transfers funds between different bank accounts, with every transaction settled individually and on a real-time basis.  

Understanding RTGS and its features, benefits, and challenges is essential for financial professionals, businesses, and individuals who engage in large-value financial transactions. This blog teaches you about what RTGS is, its key features, uses, working, benefits, limitations, and more to help you make well-informed financial management decisions. 

RTGS (full form - Real-Time Gross Settlement), as the name suggests, is a method used for fund transfers. This type of transfer takes place from one bank to another on a “real-time” and “gross” basis. This means transactions are settled as soon as they are processed (real-time), and each transaction is settled individually without being combined with other transactions (gross). 

RTGS differs from National Electronic Funds Transfer (NEFT), cheque transfers, bank credit transfers, wire transfers, etc. Other payment systems settle transactions in lots at the day’s end, but RTGS settles them individually. As a result, your funds are transferred immediately and ready for use instantly.  

RTGS bank transfer is used more for interbank transfers and large business payments where the transaction amount is high and immediate settlement is required. The minimum amount you can transfer via this mode is ₹2 lakh with no upper limit. 

RTGS is also a transparent payment process. The sender and the recipient are immediately informed of the transaction’s status. This feature reduces uncertainties or potential risks. 

• Real-Time Settlement

When you use RTGS, your transaction is processed and settled on a real-time, transaction-by-transaction basis. RTGS settles each eligible transaction individually. This makes it useful when you need to move a large amount of money.

• Individual Settlement on a Gross Basis

RTGS settles your transaction individually rather than netting it against other transactions. In other words, the system processes your eligible payment on its own instead of first offsetting it against incoming or outgoing payments.

This transaction-by-transaction settlement makes RTGS particularly suitable for high-value payments where you need a clear and timely settlement.

• Suitable for High-Value Transactions

You can use RTGS to transfer ₹2 lakh or more in a single transaction. The RBI does not prescribe a maximum transaction limit, although your bank may set limits based on your account type or the banking channel you use.

• Secure and Regulated

Your RTGS transaction moves through a payment system regulated by RBI. Banks also use authentication and security measures to protect your transactions.

That said, you should still take precautions when making an RTGS transfer. Verify the beneficiary's account details and transaction amount before you authorise the payment, and use only secure banking channels to initiate the transfer.

• Available 24×7×365

You can initiate RTGS transactions 24 hours a day, 365 days a year, including weekends and bank holidays. You no longer need to restrict your RTGS payments to conventional banking or branch operating hours.

Your bank may, however, apply specific transaction limits or operational conditions depending on the account and channel you use.

• Faster Credit to the Beneficiary

Once your RTGS transaction is successfully processed and settled, the beneficiary's bank receives the funds in real time. The beneficiary's bank must credit the amount to the beneficiary's account within 30 minutes of receiving the funds. 

Your bank processes your payment through the RTGS system and settles it individually with the beneficiary's bank. Here’s the process:

1. Initiate the transfer

You start the RTGS transfer through your bank's NetBanking platform, Mobile Banking app or branch, depending on the channels your bank offers.

Enter the beneficiary's details, including their name, account number, bank name, branch and IFSC, along with the amount you want to transfer. 

2. Your bank verifies the transaction 

Your bank checks the details you provide and verifies whether your account has sufficient funds for the transfer. Your bank may also apply its own authentication, transaction-limit and security checks before processing the payment.

Make sure you enter the beneficiary's account number and IFSC correctly. Banks generally rely on the account number to credit the beneficiary, so an incorrect account number can result in the funds being credited to the wrong account.

3. Your bank sends the payment through RTGS 

Once your bank approves the transaction, it sends the payment instruction through the RTGS system.

The RBI operates the RTGS infrastructure and provides the settlement mechanism through which participating banks settle transactions with one another. The RBI does not act as a conventional intermediary that holds and transfers your personal funds between your account and the beneficiary's account.

4. RTGS settles the transaction individually

The RTGS system settles your transaction on a real-time, gross basis. This means the system processes your eligible payment individually rather than netting it against other transactions. 

Once the transaction settles successfully, the settlement is considered final and irrevocable under the RTGS framework.

5. The beneficiary's bank receives the funds

After settlement, the beneficiary's bank receives the funds. The bank then credits the amount to the beneficiary's account.

The RBI requires the beneficiary bank to credit the beneficiary's account within 30 minutes of receiving the funds. 

6. You receive confirmation

Your bank provides transaction details or confirmation through the channel you used to initiate the payment. The beneficiary may also receive a notification from their bank, depending on the bank's communication process.

Keep your transaction reference or UTR number until you confirm that the payment has been successfully credited.

You can initiate an RTGS transfer through the banking channels your bank makes available.

• Mobile Banking

If your bank offers RTGS through its Mobile Banking app, you can initiate the transfer from your smartphone. Select the relevant fund-transfer option, choose RTGS where applicable, enter the beneficiary and payment details, and authenticate the transaction.

• NetBanking

You can also use your bank's NetBanking platform to initiate an RTGS transfer. Log in to your account, select the fund-transfer or RTGS option, enter the beneficiary details and amount, and complete the required authentication.

• Bank Branch

If you prefer to make the transfer at a branch, you can submit an RTGS request form with the required details. The bank will process the request after completing the necessary verification and authentication procedures.

What Details Do You Need for an RTGS Transfer?

Keep the following beneficiary details ready before you initiate the transfer:

• Beneficiary's name

• Beneficiary's account number

• Beneficiary bank's IFSC

• Beneficiary bank and branch details

• Amount you want to transfer

• Purpose of the transaction, where required by your bank

Many banking users consider RTGS and NEFT to be similar. While they are both electronic fund transfer methods, there is a crucial difference in how they work. NEFT transactions are processed in batches or at scheduled intervals. RTGS transactions, on the other hand, are processed continually on a transaction-by-transaction basis. Also, NEFT does not have a minimum transaction limit. 

For businesses, timely and secure movement of funds is an important part of managing day-to-day financial operations. RTGS can be useful for high-value payments of ₹2 lakh or more, such as settling supplier invoices, making large purchases or transferring funds to business partners. 

With 24×7×365 availability and real-time, transaction-by-transaction settlement, it can help you make time-sensitive payments efficiently. Before initiating an RTGS transaction, verify the beneficiary details and retain the transaction reference or UTR number for their records.

Know more about RTGS for SMEs here.

Disclaimer: *Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.