What is Real Time Gross Settlement (RTGS) System?

The Real Time Gross Settlement (RTGS) System is an electronic fund settlement system (where money transfer takes place from one bank to another) which processes and settles large value inter-bank payment instructions individually and irrevocably on Real time & Order basis using funds in the participants’ Settlement Accounts (without netting debits with credits across the books of a central Bank) in the RTGS System.

“Real Time” settlement means that the processing of instructions at the time they are received. (transaction happens almost immediately).

“Gross Settlement” means the transaction is settled on one-to-one basis (transaction by transaction) without bunching with other transactions, Unlike CEFT where the transaction happens in bulk at a given point in time during the day.

Once the transaction or the funds settlement takes place in the books of the Central Bank, it considers the payments are Final and they are Irrevocable.

The majority of RTGS transactions are relating to:

Transactions in the Interbank call money market, Government securities markets, Open Market Operations, the Rupee leg of transactions in the foreign exchange market, urgent payments of customers and net obligations under the clearing systems operated by the Lanka Clear (PVT) Limited (LCPL).

RTGS System Sri Lanka

RTGS was introduced to Sri Lanka back in 2003 by the Central Bank of Sri Lanka (CBSL) to the National Payment Systems as one of the core modules integrated together with the Scripless Securities Settlement (SSS) in ‘LankaSettle’ System which has provided a uniform settlement platform for Sri Lanka, for government debt securities settle large value Sri Lanka rupee payments and government securities transactions in scripless form.

At present following mentioned types of financial institutions have been authorized to participate at RTGS system,

1. Central Bank (CBSL)

2. Licensed Commercial Banks (LCB)

3. Authorized Primary Dealers (PD)

4. Employee’s Provident Fund (EPF)

Essential Information for a RTGS Remittance

1. Amount to be remitted

2. The account number to be debited

3. Name of the beneficiary bank and branch

4. The IFSC number of the receiving branch

5. Name of the beneficiary customer

6. Account number of the beneficiary customer

7. Sender to receiver information, if any

Customers of Commercial Banks are able to use the RTGS System to make high value money transfers between the participant banks.

i.e.:- A customer of Bank ‘A’ needs to make a money transfer of LKR 5 Mn. to the credit of the customer of Bank ‘B’ the party can use this system to meet the money transfer.

· System is open for regular transactions from 8.00 a.m. to 3.00 p.m. for customers and up to 4.30 p.m. to member banks. (However, the timings that the banks follow may vary from bank to bank.)

· RTGS does not control on any Ceiling or Floor Limits. Transmitted amount can be varied and will be effect at Real Time.

· System is capable of holding a future payment up to 10 working days.

· All same day transactions need to be reported before 10.30 a.m. to the Treasury Division and will be treated as the cut-off time for a Bank to Bank transfer for the same day.

· LKR 875/- is charged for an outward transfer originated by a customer at current tariff rate.

Main Features & Characteristics of the RTGS System.

· Payment orders could be initiated only by the paying participant. But the Central Bank can debit and credit participants’ accounts;

· Payment instructions will be submitted by SWIFT FIN Y-copy service; (SWIFT Under the FIN Y-copy mode, some of the information from the original payment order of a participant will be extracted and copied to the Central Bank. Upon authorization by the Central Bank, the original payment message will be transmitted to the receiving participant.)

· All payment instructions sent to the RTGS System will be processed and settled individually throughout operating hours;

· Under normal circumstances, payments will be debited to the paying participant’s Settlement Account and reach its receiving participant within seconds provided that a sending bank has sufficient balance in its account to make the payment. This makes the funds irrevocably available to the receiver;

· Participants may assign one of several predefined priorities to their payment orders;

· Each payment instruction will be settled individually on a first in first out basis (first come first served) in accordance with their priority and the order of arrival, without netting debits against credits;

· If the balance in the Settlement Account of the sending member is insufficient to settle the payment, payment orders will be queued;

· When the System cannot settle payments through the normal sequential settlement process, the gridlock resolution will clear backlogs of queued payment orders;

· The RTGS System will have international standards for risk control in large value fund transfer systems;

· Participants could utilize the Central Bank’s Intra-day Liquidity Facility; and

· Offers premium payment and settlement services. All participants can monitor the status of their accounts and payments in real time, make enquiries and manage their queues via their participant browser workstation.

· It makes the payment and settlement system, as a whole, more robust. This will reduce risks and improve efficiency of the national payment system in general and the high value transfer system, in particular, enhancing public and investor confidence in the financial system;

· Eliminates the risk of settling large value payments using a manually operated cheque based day-end settlement mechanism. A failure to settle by a relatively large participant in the payment system chain may lead to a systemic risk, resulting in destabilizing shocks for the banking system and the economy as a whole.

· The credit risk in the RTGS System has been reduced by settling funds in real time, using SWIFT Fin Y-copy mode, by effecting credit transfers and extending fully collateralized ILF.

· To handle increasing large value cheques, electronic fund transactions, foreign exchange and government securities markets and to provide the state-of-the-art techniques and standards.

· It provides participants with full management control of their own and their customers’ payments through more sound liquidity management.

· It will improve Central Bank’s control on monetary aggregates.

· It will speed up fund transfers and settle all types of transactions between participating institutions, transactions between the Central Bank and participants, and customer to customer through a participant. These transactions could be categorized as:

o General credit transfers among participating institutions (call market transactions, securities transactions etc.);

o Central Bank transactions (open market operations, cash delivery to and from banks, rupee leg of forex transactions and government securities transactions);

o Multilateral net settlement balances in respect of inter-bank cheque clearing and SLIPS;

o Any other high value and time critical payment including payments sent or received on behalf of their customers.

· Banks and Primary Dealers will benefit the use of Real time settlement of transactions, Increased efficiency of payments and settlements; Reduced settlement risk; More efficient use of liquidity; and Real time monitoring of transactions in Settlement Accounts.

· Any Individual or a Corporate who wishes to make a quick payment using the RTGS System could do so through one of the participating banks. Banks would reduce their cheque float and credit customer accounts faster than under the current system. This will increase intra-day mobility of funds and reduce risks in investments

· Any Individual Customers or Business can make a payment through the RTGS System could do so through his/her commercial bank within few seconds.