RTGS and ITS UTILITY

The introduction of RTGS in Indian banking industry was indeed a major event .It represented a landmark in the evolution of payment and settlement mechanism.
An RTGS payment system is one in which payment instructions between banks are processed and settled individually and continuously throughout the day.Real time settlementis process is executed as soon as a request is received and responses are sent to participants immediatelythroughout the day.Gross setllement request is received and processed and transfer of funds and settlement are done on transaction basis and not on net basis.
RTGS membership can be of different types.The categories are-
A-RBI and all scheduled banks.
B-Primary dealers.
C-Scheduled banks and primary dealers participating in call money market.
D-Clearing houses and clearing agencies.
e-non-scheduled banks and other financial institutions.
The most important benefit of RTGS is that it reduces the risk involved in the payment system.Money is credited to the account of beneficiary instantly.RTGS requires large amount of liquidity as settlements are done on transaction basis .This may require intra-day funding and such funding is done by RBI.
Advantages-
1.Instant credit of money.2.Reduction in transaction cost.3.Reduced paper work.4Certainty and finality of payment.5.No fear of cheque bounces.6.Reduced risks of frauds.
Disadvantages-
1Non-availability of float money for banks.2.Reduced utilisation of working capital limits by banks on account pf prompt credit of money to their accounts.This will affect interest income of banks