RTGS stands for Real Time Gross Settlement. It's a system used for transferring funds or securities from one bank to another in real time. The process involves the continuous and instantaneous settlement of payments on an individual transaction basis without netting debits against credits.

 

Here's how RTGS works:

1. Initiation of Transaction: A sender initiates a funds transfer through their bank. The sender provides details such as the recipient's name, account number, the amount to be transferred, and any other required information.

2. Transmission to RTGS: The sending bank forwards the transaction details to the RTGS system, which then processes the information. This system may be managed by a country's central bank or a financial institution.

3. Verification and Settlement: The RTGS system verifies the transaction details, ensuring the sender has sufficient funds available. If the verification is successful, the system immediately debits the sender's account and credits the recipient's account with the transferred amount.

4. Notification: Upon completion of the transfer, both the sender and the recipient receive immediate confirmation of the transaction.

5. Real-Time Settlement: The entire process, from initiation to settlement, happens in real time, providing immediate and final transfer of funds.

 

RTGS is commonly used for high-value transactions that require immediate settlement, such as large business payments, interbank transfers, or settlement of financial market transactions. It offers the advantage of minimizing credit risk as the funds are transferred in real time and are considered final and irrevocable.

The exact workings of an RTGS system can vary from country to country, but the fundamental principle remains the same - providing a swift and secure means for transferring funds in real time between financial institutions.

 

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