Reserve Bank of India-Shrikant

REAL TIME GROSS SETTLEMENT
(RTGS) PAYMENT SYSTEM
SIP project report submitted in partial fulfillment of

the requirements for the PGDM Program
By:
PUNEET KANDOI
Roll Number: 08FN072
Supervisors:
1. Shri Ashutosh Jaiswal (Manager – RTGS)
Deposit Accounts Department,
Reserve Bank of India, Mumbai
2. Prof. Harshavardhan Halve, IMT Nagpur
3. Prof. Anil Kumar, IMT Nagpur
Institute of Management Technology, Nagpur

2008 – 2010
ACKNOWLEDGEMENTS
I am sincerely grateful to Reserve Bank of India for providing me an opportunity to be a

part of its Summer Internship Scheme 2009. This Summer Internship is a necessary
component towards fulfillment of the requirements of the Post Graduate Diploma in
Management (PDGM) program that I am currently undergoing from Institute of
Management Technology, Nagpur. Having undergone the Summer Internship from one
of India’s most prestigious and respected institutions has indeed been a learning,
rewarding and pleasurable experience for me.
I also want to express my gratitude and sincere thanks to my project guide Sri Ashutosh
Jaiswal for constantly guiding and supervising my project. This project would not have
been possible without his support and motivation. The support from other RBI employees
in the Deposit Accounts Department is also praise-worthy. Last but not the least, I am
grateful to Prof. Harshavardhan Halve and Prof. Anil Kumar, the faculty guides for this
project for their guidance and support.
Puneet Kandoi
Summer Trainee
Reserve Bank of India
SIP report on RTGS Payment System Page 2

TABLE OF CONTENTS
S. No. Topic Page No.
1 Executive Summary 4
2 Introduction 5
3 Components of the Indian Payment System 7
4 Real Time Gross Settlement (RTGS) Payment System 9
5 Objectives of the Study 14
6 Brief about the organization where the study was carried out 15
7 Functional working of the Deposit Accounts Department 16
8 Methodology followed 17
9 Tabulation and Findings 19

I. Comparison of Indian RTGS system with other countries 19
II. Modus operandi of RTGS in various banks 24
III. Results from survey on Banks’ feedback on RTGS 34
10 Personal observations and Recommendations 47
11 Limitations of the study 48
12 Scope for improvements 48
13 Appendix – Questionnaire used for the survey 49
14 Bibliography 53

EXECUTIVE SUMMARY
Real Time Gross Settlement (RTGS) Payment System is the fastest and the most efficient
method of transferring funds through the banking channel. Countries around the globe
have been using this payment mechanism efficiently over the years. Started by the
Reserve Bank of India in October 2004, this product has seen tremendous growth in the
country over the years. The number of participating banks has increased substantially,
and so has the volume and value of transactions carried out through RTGS; and the
growth is expected to continue in the times to come.
This project aims to study different aspects of the RTGS system in India. There are three
main goals of this project: (1) To analyze the performance of the Indian RTGS system
with that of other major countries (primarily in terms of volume and value of RTGS
transactions carried out by different countries). (2) To understand the modus operandi of
RTGS’ usage in some banks which actively/extensively use RTGS system in their
operations, and (3) To get a feedback from the member banks on the performance of
RTGS payment system.
The countrywide comparison has been done for 75 countries and the performance of the
Indian RTGS system has been compared to them. To get a meaningful comparison, the
value of the RTGS transactions has been expressed as the number of times of the GDP of
the respective country. India’s performance vis-à-vis the other countries has been
highlighted. The modus operandi of RTGS in 4 banks has been studied in detail and
presented in this report. Apart from this, Feedback from 25 member banks has been taken
with the help of a questionnaire, and various results from the study conducted have been
presented in the form of graphs and personal observations. Finally, the project aims to
look at various issues/problems faced by the banks in the RTGS system and takes their
suggestions on how to improve it. The recommendations given towards the end of the
report are based on the observations during the survey and on the interaction with the
member banks.

INTRODUCTION
A Payment System is a system used to settle financial transactions in various markets

(viz. bond markets, currency markets, and futures, derivatives, or options markets) or to
transfer funds between financial institutions. In other words, a payment system is a
mechanism that facilitates transfer of value between a payer and a beneficiary by which
the payer discharges the payment obligations to the beneficiary.
The Core Principles for Systemically Important Payment Systems, outlined by the
Committee on Payment and Settlement Systems (CPSS) of the Bank for International
Settlements, Basle, define payment systems as “a set of instruments, procedures and
rules for the transfer of funds among system participants”. The most significant payment
systems are a major channel by which shocks can be transmitted across domestic and
international financial systems and markets.
The Payment System has importance for the functioning and integration of financial
markets. It influences the speed, financial risk, reliability and cost of domestic and
international transactions. As a consequence, it can, among others, act as a conduit
through which financial and non financial firms and other agents affect overall financial
system stability, with a potential for domestic and cross border spillover effects. The
payment system also affects the transmission process in monetary management, the pace
of financial deepening and the efficiency of financial intermediation.
In essence, the payment systems are required for the following purposes:
• For protecting key existing assets of the banking system.
• For strengthening the customer base.
• For reducing existing costs and generating new income.
• To reduce the various risks associated with the payment systems (Credit risk,
Liquidity risk, Operational risk, Legal risk and Systematic risk).

The payment system in India operates under the following pyramid:
The Reserve Bank of India acts as a regulator and supervisor of the payment and
settlement systems, and is the settlement bank. Its vision regarding the payment systems
has been:
• The establishment of safe, secure, sound and efficient payment and settlement
systems for the country.
• Anyone can make payments to whomsoever one likes, whenever one likes, in
whatever type of currency one likes, at the cost of a few cents per transaction.
• There are no settlement delays or mountains of paperwork and value is received
instantaneously.
• Privacy and security are guaranteed.
In consonance with this vision, the RBI has brought various types of payment systems
into use. Each of these payment systems serves a different purpose and has differentiating
characteristics. To get a fair understanding of these payment systems, we will take a brief
look at some of the Systemically Important Payment Systems (SIPS) operating in India
and their features.

COMPONENTS OF THE INDIAN PAYMENT SYSTEM
Components of the Indian payment system
Retail Systems Large Value Systems
Paper Based Electronic Paper Based Electronic
MICR ECS NEFT SEFT High Value Inter-bank

Clearing Clearing
PDO-NDS/SSS Forex Clearing RTGS
Now let us examine some of the important payment systems in brief:
• ECS (Credit) - Under ECS (Credit) one entity / company would make payments
from its bank account to a number of recipients by direct credit to their bank
accounts. For instance, companies make use of ECS (Credit) to make periodic
dividend / interest payments to their investors.
• ECS (Debit) - ECS (Debit) is mostly used by utility companies like telephone
companies, electricity companies etc. to receive the bill payments directly from
the bank account of their customers. Instead of making electricity bill payment
through cash or by means of cheque, a consumer (individuals as well as
companies) can opt to make bill payments directly into the account of the
electricity provider / company / board from his own bank account.

• National ECS (NECS) - Aims to centralize the ECS operation and bring in
uniformity and efficiency to the system. NECS (Credit) would facilitate multiple
credits to beneficiary accounts destination branch at participating center against a
single debit of the account of a user with the sponsor bank. NECS (Debit) would
facilitate multiple debits to destination account holders against single credit to
user account. The system has a pan-India characteristic leveraging on CBS of
member banks. The cycle time is T + 2.
• Centralized ECS (CENECS) – This service is available in 15 centers. Under

Centralized ECS, a user can submit ECS data at a single location for transfer
amongst beneficiaries located at any of the other centers forming part of the ECS
network. The scheme ensures quick, safe & efficient movement of funds for
repetitive small value transactions such as credit of interest arising from fixed
deposits, dividends, refund amounts & the like. It operates on T + 2 basis.
• National Electronic Funds Transfer (NEFT) – NEFT system is a nationwide funds

transfer system to facilitate transfer of funds from any bank branch to any other
bank branch without any delays or procedural hassles. The beneficiary gets the
credit on the same Day or the next Day depending on the time of settlement.
• High Value clearing: High value clearing is a value added service. In this clearing
select branches located in a central business/commercial area and in the vicinity
of the Clearing House/Service Branches of banks present instruments with a face
value of Rs.1 Lac and above (now increased to Rs. 5 Lacs and above) deposited
by their customers within a specified cut-off time, to the clearing house.
• Inter-bank Clearing: Inter-bank payments are usually settled among banks by

issuing cheques drawn on their accounts with Reserve Bank of India. In the Inter-
bank clearing banks no longer use the RBI cheques to settle their claims against
each other. Instead, they use their own Bankers Cheques.

REAL TIME GROSS SETTLEMENT (RTGS) PAYMENT SYSTEM
The RTGS payment system was started in October 2004, and is managed by the Deposit
Accounts Department of the RBI. It is classified as a “Large Value Payment System”, as
only transactions of a value of greater than Rupees One Lac can be processed through it.
Apart from the National Electronic Funds Transfer (NEFT), RTGS is the only other
payment system classified under “National Payment Systems” by the RBI.
RTGS system is a funds transfer mechanism where transfer of money takes place from
one bank to another on a “real time” and on “gross” basis. This is the fastest possible
money transfer system through the banking channel. Settlement in “real time” means
payment transaction is not subjected to any waiting period. The transactions are settled as
soon as they are processed. “Gross settlement” means the transaction is settled on one to
one basis without bunching with any other transaction. Considering that money transfer
takes place in the books of the Reserve Bank of India, the payment is taken as final and
irrevocable.
The distinction between the different types of payment systems is:

Payment Settlement Mode of No. of
Cost Awareness
System Time Transaction Centers
MICR T+2 Manual - 60 High
High Value
T+0 Manual - 18 Medium
Clearing
Single debit Decided by the 30000+
ECS Electronic Low
or credit user banks branches
Rupees 5/- for
T+0/ transactions less 53000+
NEFT Electronic Low
T+1 than Rs. 1Lac, branches
25/- for > 1Lacs
Rupees 25/- for
transactions up to 55000+
RTGS Instantly Electronic Low
5 Lacs, 50/- for branches
more than 5 Lacs

Some Salient features of the Indian RTGS system
• Participant Interface (PI): Each participant has access to the RTGS system via a
Participant Interface (PI), which supports high-value payments and associated
non-value functions such as enquiries, queue management, reporting, security,
and resilience and recovery requirements.
• Y-Topology: The Indian RTGS system is based on the Y-Topology and an

Integrated Accounting System (IAS). Under the Y-shaped topology for an RTGS
system, the payment message is transmitted by the sending bank to a central
processor (IFTP). This central processor takes only the relevant details from the
original payment message necessary for settlement and routes this core
information to the central bank for the purpose of settlement of funds (the original
message is kept in the central processor itself). The central bank completes the
funds transfer, provided funds are available, and informs the status to the central
processor. Thereafter, the full message containing the confirmation of the
settlement is rebuilt by the central processor and sent to the receiving bank.

• Queuing System: In order to optimize the efficiency of the system, the RTGS
system in India has incorporated a queuing mechanism. Payment messages that
cannot be processed in real time due to insufficient funds in the sending bank's
settlement account are placed in a Queue. There would be one logical payment
queue for each participant. Participants can view their "Outgoing" messages
queue, but not the “Incoming” messages. Queued transactions are processed in
FIFO - First In First Out – order. FIFO ordering of message processing (queued
transactions) can be altered by members by re-ordering / assignment of priorities
to transactions. Priorities can be set / changed by the sending participants. Default
priorities can be assigned by the system for each transaction type. Participants can
assign 0 - 99 levels of priority to their transactions. A range of priorities (0-10) are
reserved for RBI. Gridlock Resolution: If transactions remain in the queue for
long, it can lead to a situation of Gridlock. In order to enhance the performance
efficiency of the system, Gridlock resolution has been provided in the system by
way of netting (outgoing and incoming) messages of members.
• Intra-day Liquidity Provision: In case funds are not available in the settlement
account of the paying bank, intra-day liquidity (IDL) to the participants is
provided by RBI against 100% collateral. Only specific types of transactions are
eligible for such IDL support. Participants have to earmark the eligible securities
available as collateral for IDL purposes in the Securities Settlement System (SSS)
for this purpose so that the RTGS can communicate with the SSS for the
operation of IDL. The limit to IDL usage by any bank is kept at three times the
bank’s Net Owned Funds (NOF). Each instance of IDL usage by a bank attracts
nominal usage charges, irrespective of the amount of IDL taken.
• Interaction with Net Settlement Systems: Multilateral Net Settlement Batch

(MNSB) transactions, which allow multiple counter parties to the transaction and
are submitted by authorized clearing entities, are also allowed through the RTGS
platform and these have priority over other transactions held in the queue.

Indian RTGS – Process Flow
The process flow of a transaction in the RTGS system in India is described below:
• Paying Bank - The Paying bank sends the payment message through the
Participant Interface, giving details of beneficiary, transaction type, amount etc.
• IFTP - The IFTP receives the message and validates the digital signature, etc.
Thereafter, only the relevant portion of the message is sent to the RTGS system.
• RTGS settlement account - In the RTGS Settlement Account base, the settlement
accounts, funded according to the standing instructions given by the members, are
held. It is here that the final debits and credits into members’ accounts take place.
• Balance check - In the RTGS Settlement Account base, the settlement accounts,
funded according to the standing instructions given by the members, are held. It is
here that the final debits and credits into members’ accounts take place.
• Settlement entries - If sufficient funds are available for completing the payment
instruction, the paying bank's account is debited and the amount is credited to the
settlement account of the receiving / beneficiary bank.
• Receiving bank - The receiving bank will receive the credit advice from the IFTP
(along with necessary transaction details) once the amount has been credited to its
settlement account in the RTGS settlement account base.
• Queuing mechanism - In case sufficient funds are not available in the paying
bank's settlement account during balance check, the payment message is put in a
Queue. The pending messages in the queue will be processed in FIFO order
within the assigned priorities to messages.

• IDL eligibility - From the queued transactions, the transactions are checked to see
whether they belong to the type which is entitled to obtain Intra Day Liquidity
from RBI. This check happens at pre-designated time intervals.
• Message to SSS - Once it is ascertained that a queued transaction is eligible for

IDL from RBI, a message is sent to the Securities Settlement System (SSS) to
check the status of securities availability as collateral for IDL. SSS is part of the
PDO-NDS application.
• IDL-SGL balance check - When the IDL related message is received at the SSS,
a check is done on the IDL-SGL Account for availability of sufficient stock of
securities. IDL-SGL is a separate account opened by the RTGS participants where
the eligible stock of collateral for IDL purpose is transferred from their
proprietary SGL account.
• Securities Collateral - If sufficient cover of securities is available in the

member's IDL-SGL account, the securities are blocked and positive confirmation
sent back to the RTGS system. In case of shortage of securities, a negative
confirmation is sent to the RTGS system.
• IDL release - When a positive confirmation is received from the SSS, RBI
releases the necessary amount into the member's settlement account so that the
queued transactions can be processed. The rest of the processing would be as
described earlier. In case of receipt of negative confirmation, the transaction is put
back into the queue to be processed again later.
Types of Membership: RBI provides 5 types of membership for RTGS, viz. type A, B,
C, D and E. Each of these types of membership has different features and criteria. Type A
is for scheduled commercial banks, type B for primary dealers, type C for those dealing
in call money market, type D for clearing houses and type E for special institutions.

OBJECTIVES OF THE STUDY
The objectives of this project are as follows:
• Understanding the meaning of payment systems and also study about the various
payment systems operating in India.
• Understanding RTGS and its uniqueness, the Access Criteria and the Business
Operating Guidelines given by RBI to user banks.
• Doing a comparative study of the Indian RTGS system with that of the RTGS
systems followed in other major economic powers and analyzing where does
Indian RTGS stand in comparison to them.
• Understanding how RTGS is implemented at the user banks, operational
procedures for initiation and reconciliation of RTGS transactions and various
technical / non-technical issues associated with it.
• Finding about the various issues that the user banks may have with RBI and other
banks with regard to the operations of the RTGS payment system.
• Giving suggestions on the overall improvements in the RTGS payment system, as
reported by the various RTGS user banks.
To achieve the following objectives, the project has been carried out under three parts:
• A comparative study of the Indian RTGS system with that of the various forms of
RTGS systems followed in other major countries has been done. This comparison
is done primarily with respect to the volume and value of the RTGS transactions
carried out by these countries, the value expressed as the number of times of the
country’s GDP, year of implementation and the number of participants.
• A visit to 4 banks was done to understand the RTGS system from a user banks’
perspective and also to understand how they implement the RTGS system.
• A questionnaire was designed and the responses of 25 RTGS user banks were
taken to find about the various aspects of RTGS implementation at their bank, and
also about any other issues the banks face with regard to the RTGS system.

Brief about the organization where the study was carried out
The Reserve Bank of India is the central bank of India, and was established on April 1,
1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The
Central Office of the Reserve Bank was initially established in Kolkata but was
permanently moved to Mumbai in 1937. Though originally privately owned, the RBI has
been fully owned by the Government of India since its nationalization in 1949. The
Reserve Bank of India was set up on the recommendations of the Hilton Young
Commission. The commission submitted its report in the year 1926, strongly
recommending the establishment of a Central Bank in India. The main reason for this
recommendation was the then existing ‘inherent weakness’ in the Indian system due to
the control of currency and credit being in two different hands. The Government
controlled the currency while the Imperial bank controlled the credit situation in the
country and such divided control led to co-ordination problems of currency and credit.
Hence, the Reserve Bank of India was set up to perform solely the central banking
functions.
The Preamble of the Reserve Bank of India describes the basic functions of the Reserve
Bank as to regulate the issue of Bank Notes and keeping of reserves with a view to
securing monetary stability in India and generally to operate the currency and credit
system of the country to its advantage. The RBI has the mandate to ensure that prices
remain stable and there is enough money for economic growth. The bank also works
towards keeping the banking system safe and stable. The main functions of the Reserve
Bank of India are:
1. Monetary Policy 6. Overseeing the payment system

2. Currency Management 7. Exchange rate & reserve management
3. Banker to banks 8. Management of foreign exchange
4. Banker to government 9. Developmental functions
5. Financial regulations & supervision 10. Data and research

Functional working of the Deposit Accounts Department of RBI
The Reserve Bank acts as a banker to scheduled banks, state co-operative banks and other
approved quasi-govt. institutions, in terms of Section 17 of the RBI Act, 1934 besides
being banker to Central and State Governments. The Reserve Bank's responsibilities
include, in addition to the Central banking functions, the development of an adequate and
sound banking system for catering to the needs of trade, commerce, industry and
agriculture. The Banking Department of the Bank is entrusted with handling of
transactions arising from the Bank's obligations as banker to Government and to the
banks. The Deposit Accounts Department (DAD) is the nucleus of the Bank's accounting
system where all the classified accounts of the Bank are maintained in a systematic
manner. All transactions effected in the various departments of the Bank on any day will
finally be reflected in the different accounts maintained in the DAD.
Sections of the Deposit Accounts Department (DAD):

• Current Accounts Section
• Remittance Section
• Loans and Advances Section
• Charges Account Section
• Administration Section
• Foreign Accounts Section
• Stationery Section
All the above mentioned sections perform various functions. The Current Accounts and
the Remittance Section of the Deposit Accounts Department is important from this
project’s point of view. The Current Accounts Section maintains current accounts of
Scheduled/Non-Scheduled Banks, State Cooperative Banks, Financial Institutions,
Foreign Central Banks, International Financial Institutions, Mutual Funds, Primary
Dealers, Satellite Dealers or any other institutions as approved by the Central Office.

The Remittance Section primarily looks at the Issue and Encashment of Telegraphic
Transfers, Mail Transfers and Drafts. This section also monitors the RTGS operations of
the RBI. The Deposit Accounts Department works in close co-ordination with the
Department of Payment and Settlement Systems (DPSS) of the RBI. The DPSS is
responsible for regulation and oversight on the Payment and Settlement Systems which
encompass the cheque based clearing systems managed by the Reserve Bank and other
commercial banks, Electronic Clearing Service (ECS), Electronic Funds Transfer (EFT)
System, the inter-institutional Government Securities clearing, the inter-bank foreign
exchange clearing as also the RTGS.
The functions of the Department include the following:

• Formulation of Payment and Settlement Systems policies.
• Regulation of Payment and Settlement Systems.
• Supervision of Payment and Settlement Systems.
• Implementation of the Core Principles relating to payment systems (as enunciated
by the Bank for International Settlements).
• Designing, developing and integrating Systemically Important Payment System
(SIPS) projects and / or facilitating such implementation.
• Monitoring the operations of payment and settlement systems.
Relevance of this project in context of overall company objectives and strategies:
From this project, the Deposit Accounts Department of the Reserve Bank of India will
get to know how the RTGS system is implemented in the user banks and how they
perform the operational and troubleshooting tasks. RBI will also get to know about the
various issues or problems that the user banks face in the RTGS system and that will help
it in resolving those issues. Finally, the comparative analysis of the Indian RTGS with
that of other major countries’ RTGS system will help RBI in determining where does the
Indian RTGS stand in comparison to other countries, and accordingly necessary steps can
be taken for the overall improvement in the system.

METHODOLOGY FOLLOWED
The various steps involved in the project and the corresponding methodology has been
mentioned herein:
• Study about the various payment systems operating in India: Various
materials given by the project guide and the RBI website were used to study about
the various payment systems operating in India (including RTGS). After
completing the study, a power point presentation was made on the topic.
• Comparative analysis of the Indian RTGS with that of other countries’
RTGS: The methodology followed in this step is to search about the various types
of RTGS system used in other countries. Primarily the business details of the
RTGS system for various countries were taken. These details include the system
name, year of implementation, operator’s name, number of participants, volume
and value of transactions carried out in a year. This data was collected from
various sources such as reports by World Bank, Bank for International
Settlements, etc, and from the website of Central Banks of various countries. To
have a meaningful conclusion from this data, the value of RTGS transactions
carried out by the countries have been expressed as the number of times of GDP
of that country. This comparison has been done for 75 countries including India.
• Taking feedback from the member banks about the RTGS system: For this
step the objective is to take a feedback from the RTGS member banks, finding out
whether they have any issues with RBI or other banks with regard to the RTGS
system and what suggestions they have for improvement in the RTGS system.
The secondary objective was to understand how RTGS is implemented at various
member banks and what the modus operandi of RTGS in their bank is. This
included studying about the operational procedures for initiation and
reconciliation of RTGS transactions and various technical / non-technical issues
associated with it. For this purpose, a questionnaire was prepared in consultation
with the project guide and 25 banks were visited to get their feedback.

TABULATION AND FINDINGS
Part I: Comparison of Indian RTGS with that of other major countries
This comparison has been done to gauge the performance of the Indian RTGS system vis-
à-vis other major countries. The comparison has been done primarily with respect to the
volume and value of RTGS transactions carried out by these countries in the year 2007
(since the latest data for the year 2008 was not available for most of the countries). Now
since the volume and value of transactions may also depend on the size of the country,
the comparison has also been done with respect to the Turnover of GDP (i.e. the value of
RTGS transactions / GDP of that country) and the number of participants.
The overall comparison is done for 75 countries including India. The data has been taken
from many sources including reports by World Bank, reports by Committee of Payment
and Settlement Systems (CPSS) of the bank for International Settlement, reports by
European Central Bank, etc., and also from the website and annual reports of the Central
bank of various countries. Due to space constraints, the full table containing all the
findings cannot be shown in this report. However, the major findings and observations
from the collected data are shown hereunder:
In terms of overall comparison for 75 countries, India’s rank in terms of various

parameters of RTGS is as follows:
• Volume of RTGS transactions: 23rd out of 75 countries.

• Value of RTGS transactions: 35th out of 75 countries.
• Turnover of GDP: 52nd out of 75 countries.
However, this overall comparison has certain limitations. Firstly, the data available was
for the year 2007, when Indian RTGS used to handle approximately 23000 transactions

daily. Today it handles approximately 100000 transactions daily. This growth is primarily
because India’s RTGS started quite late as compared to other countries. 32 out of top 40
countries (in terms of Turnover of GDP) started their RTGS system on or before the year
1999, hence the RTGS usage in those countries would have been higher than India.
If the current data would have been available, the above situation would have been quite
different as India’s volume and value of RTGS transactions has increased quite
significantly since 2007. However, working within the data that was available, a
meaningful comparison has been made by segregating the data into 4 parts:
• Countries that implemented their RTGS system prior to 1997: Out of 18

countries in this comparison, India’s rank in terms of volume of RTGS
transactions is 9th; rank in terms of value of RTGS transactions is 14th; and rank in
terms of Turnover of GDP is 16th.
• Countries that implemented their RTGS system between 1997 and 1999: Out
of 21 countries in this comparison, India’s rank in terms of volume of RTGS
• Countries that implemented their RTGS system between 2000 and 2002: Out
of 20 countries in this comparison, India’s rank in terms of volume of RTGS
• Countries that implemented their RTGS system after 2002: Out of 19
countries in this comparison, India’s rank in terms of volume of RTGS
transactions is 3rd; rank in terms of value of RTGS transactions is 2nd; and rank in
Since Indian RTGS system started after the year 2002 (year 2004 to be precise), the
graphs relating to only those countries that started their RTGS system after the year
2002 is shown hereunder.

• Comparison in terms of volume of RTGS transactions in 2007
Volume of transactions in 2007 (in Thousands)
Sri Lanka 205.63
Lietuvos 0.00
Cyprus 0.00
Ukraine 1651.70
West African States 281.99
Hongkong (EURO CHATS) 40.00
Slovenija 120.00
Bosnia 704.70
Lithuania 270.00
Chile 167.90
Zambia 91.46
Albania 45.73
India 5840.00
Bulgaria 920.00
Kuwait 0.00
Kenya 239.15
Romania 2097.83
Mexico 29471.00
Serbia 169630.00
0.00 20000.0040000.0060000.0080000.00100000.00
120000.00
140000.00
160000.00
180000.00
Volume of transactions in 2007 (in Thousands)
Observations: Looking at the above graph, one can easily identify that the volume of
RTGS transactions carried out in Serbia is by far the highest among the countries that
implemented their RTGS system after the year 2002 (close to 6 times of that of Mexico,
the country with the second highest volume of RTGS transactions). India ranks 3rd in this
parameter.

• Comparison in terms of value of RTGS transactions in 2007
Value of transactions in 2007 (in Billions of US Dollars)
Sri Lanka 0.94
Lietuvos 2.55
Cyprus 2.23
Ukraine 21.61
Hongkong (EURO CHATS) 412.87
Slovenija 96.75
Bosnia 33.41
Lithuania 91.11
Chile 555.80
Zambia 41.17
Albania 40.46
India 6584.79
Bulgaria 294.10
Kuwait 799.23
Kenya 235.99
Romania 1452.68
Mexico 12582.69
Serbia 729.91
0.00 2000.00 4000.00 6000.00 8000.00 10000.00 12000.00 14000.00
Value of transactions in 2007 (in Billions of US…
Observations: Here we can see that Mexico is the country in which the value of RTGS
transactions is the highest among the countries that implemented their RTGS system after
the year 2002 (almost double of that of India, the country with the second highest value
of RTGS transactions). Serbia is way behind here, which means that the value per RTGS
transaction in Serbia is quite low.

• Comparison in terms of Turnover of GDP of RTGS transactions in 2007
Turnover of GDP (Value of Transactions / Nominal GDP)
Sri Lanka 0.03
Lietuvos 0.07
Cyprus 0.10
Ukraine 0.15

Hongkong (EURO
2.00
CHATS)
Slovenija 2.06
Bosnia 2.28
Lithuania 2.38
Chile 3.39
Zambia 3.62
Albania 3.83
India 5.62
Bulgaria 7.44
Kuwait 7.83
Kenya 8.00
Romania 8.75
Mexico 14.08
Serbia 17.55
0.00 5.00 10.00 15.00 20.00
Turnover of GDP (Value of Transactions / Nominal …
Observations: Considering the different population size of the countries under

comparison, this parameter is necessary to judge the importance of RTGS in the
respective countries. Here we see that Indian RTGS ranks 7th in 19 countries. This is
primarily due to the large GDP of India as compared to the other countries in the study.
Still, we can conclude that Indian RTGS has performed well since its inception.

Part II: Studying the Modus Operandi of RTGS in user banks
The objective here is to understand how various banks carry out the RTGS process at
their end, primarily the operational aspects related to initiation and reconciliation of
RTGS transactions; and also various technical/non-technical issues associated with it. For
this purpose, 4 major RTGS user banks were visited for 1-2 days each as per their
convenience and their RTGS process was understood. These visits were undertaken with
the following objectives in mind:
• To observe and learn about the operational procedures related to the initiation and
reconciliation of RTGS transactions.
• To understand the troubleshooting aspects of the bank (action plan at the times of
contingency situations), which includes their Disaster Recovery Plan and
Business Continuity Plan.
• Other technical/non-technical issues.
• Exploring the possible issues that the bank may have with RBI with regard to the
various aspects of the RTGS system.
• Also knowing about any issues that the bank may have with any other bank(s).
• Getting other miscellaneous information like number of RTGS enabled branches,
volume and value of transactions carried out by the bank on an average per day,
etc. which will help in a comparative analysis of various banks.
• Finally, to get the bank’s viewpoint on how can the RTGS system be improved,
i.e., asking for any suggestions the bank might have on the RTGS system.
The 4 banks visited for this study were: Citibank, HDFC Bank, State Bank of India and
ICICI Bank. In this section of the report, the transaction initiation, reconciliation process
and the troubleshooting aspects of these banks have been explained in detail, while other
aspects such as their feedback on RTGS and suggestions, etc. have been taken up in the
next section of this report, i.e. the feedback on RTGS from the member banks.

CITIBANK
1. The Initiation of a transaction and the transaction flow
Citibank’s customers can initiate an RTGS transaction either by going to any Citibank
branch or through Net Banking, i.e. by logging in through their internet banking user id
on the Citibank website. Apart from this the inter-bank transactions also take place.
Therefore, three types of transactions normally take place on RTGS:
• Customer transactions through branches
• Customer transactions through Internet Banking
• Inter-bank (Bank to Bank) transfer
The transactions are initiated on the Participant Interface (PI) provided to all Citibank’s
RTGS enabled branches. From there the transactions are routed to the IFTP server of RBI
via the main Gateway of Citibank. Once the transactions hit the IFTP server, the normal
procedure by RBI is followed (with respect to its Y-structure of the RTGS system). The
process can be understood through the following diagram:
PI 1
Citibank’s Gateway Recipient Bank’s
Gateway
PI 2
PI 3 PI 4 Payment Credit
Instruction Advice
IFTP Server
Sends Payment message Positive acknowledgement
RTGS Server

2. The Reconciliation Process
Step 1: Download the QLM Step 2: Download the internally

Statement for the previous working generated excel sheet for the same
day. day.
Step 4: Take into account the PI Step 3: Format both Excel sheets.
rejects and cancelled transactions in Include transaction type in QLM
the QLM sheet. sheet and UTR number in the other
sheet.
Step 5: Import both these files into Step 6: Run the three pre-specified
MS Access. queries and export the resulting
tables to Excel.
Step 8: Club all unmatched Step 7: Update the department name

transactions. Knock off all queries in the file containing those
that can be knocked off manually. transactions that are not matched.
Step 9: Mark the remaining Step 10: Circulate a mail and follow
transactions as “open exceptions” up with the concerned departments
and identify the corresponding to resolve the open exceptions.
department to which they relate.

HDFC BANK
Like any other bank, HDFC has two types of transactions in RTGS: Customer
transactions and Inter-bank transactions. The customers of HDFC bank have several
modes of initiating an RTGS transaction. They are: walk-in customers, fax, email, retail
division customers. The process can be understood with through the following diagram:
Control Software
All customer and inter-bank
transactions received through all
modes are entered in this software
and sent for further processing.
Authorization Flexcomp Inputting

Sign, amount, etc. are checked.
Depending on the amount, one or Looks exactly like the PI. All
two authorizations are required RTGS requests are entered in this
and released to the PI. software and from here they are
sent for authorization.
Liquidity Manager Participant Interface (PI)

If a transaction is of more than The RTGS transfer request now
Rupees Hundred Crores, it will be comes to the PI of HDFC Bank
stopped here and confirmation and from here it is routed to the
will be taken from treasury dept. IFTP server of RBI.

The RTGS process at HDFC Bank is a fairly simple process. It involves checking three
accounts at the End of the Day (EOD). These accounts are: RTGS Settlement Account,
Customers’ Deferred Suspense Account and RTGS Interbank GL Account. Now the
characteristic of each of these accounts and their reconciliation is described as under:
• RTGS Settlement Account: This is a mirror account of HDFC’s account

maintained at the RBI. All debits and credits take place simultaneously. Hence at
the EOD, the balance in this account is always “Zero”. For this account, the
reconciliation is only to check whether the balance is zero after the EOD balance
is taken into account. If this balance is zero, the reconciliation is over as far as this
account is concerned. If the balance is not zero (which happens only in extremely
rare cases), that is considered to be an IT problem and the problem is solved with
co-ordination from the IT department.
• Customers’ Deferred Suspense Account: Those transactions that are not settled
through the STP (Straight Through Processing) because of a mismatch in name
and/or account number, etc. are automatically posted in this account. These
transactions are to be checked manually and then passed. The reconciliation for
this account is also limited to checking whether the balance in this account is zero
or not.
• RTGS Interbank GL Account: All the interbank transactions of HDFC bank are
passed through this account. The MNSB transactions from RBI and the EOD
balance etc. are also passed from this account. For reconciliation in this account,
the balance in UBS (which is HDFC’s internal system for interbank transactions),
must tally with the sum of the pending branch-wise telegraphic transfers and the
RBI’s MNSB and EOD balances. Sending a mail to the internal units solves any
discrepancy.

STATE BANK OF INDIA
Any transaction that is entered into the Core Banking System (CBS) of SBI follows the
maker-checker concept, i.e., one person will make the entry into the CBS and another
person will check and authorize the transaction. Once authorized, UTR number is
generated. This is noted on the form and given back to the customer. The complete
transaction flow for an outgoing message can be understood with the help of the
following diagram. Inward transactions too follow a similar procedure as that of an
outgoing transaction.
Recipient Bank gets

Customer fills up the
confirmation and
RTGS funds transfer
credits Customer a/c.
request form.
Remittance Amount Outgoing Message Data flows through

and Charges are paid to the RBI’s IFTP
as per desired mode. Flow Chart and RTGS server.
Data entry and its Data transmitted to Data transmitted to

authorization in CBS Intra-day Liquidity
the PI maintained at
System. Management.
Belapur.

The RTGS Reconciliation process at State Bank of India is a fairly simple task,
considering the fact that each and every RTGS transaction is not knocked off using the
RBI statement. The reconciliation for the RTGS transactions on a business day is done on
that day itself after 7.30 pm (once the RTGS special window is closed by the RBI). The
complete procedure is explained below:
• After the RBI closes the RTGS window, the total number of Outward and Inward
messages is checked from the Participant Interface (PI), and also from the Intra-
day Liquidity Management (ILM) software.
• Now on a plain sheet of paper, some manual calculations have to be done,

primarily to match the number of inward and outward transactions in the PI and
ILM. Also, the total amount pertaining to the inward and outward transactions for
the day needs to be determined.
• Normally, the number of transactions in the PI and ILM do not match. Hence,
some adjustments have to be made from the number of transactions obtained from
the ILM. The MNSB transactions from RBI need to be deducted and the Rejected
transactions by the PI and the Group Payments made by SBI to its associate banks
need to be added to the outward transactions. For the inward transactions, the
MNSB transactions from RBI need to be subtracted from the number of
transactions obtained from ILM.
• During the process mentioned in the above step, the amounts pertaining to the
related adjustments are also adjusted and the total figure for the day’s outward
and inward transactions is obtained. This figure (for both outward and inward
transactions) needs to be matched with the total figure obtained from the Core
Banking System, which records all the inward and outward transactions for the
day. Both the figures SHOULD tally.

• After the above step, the officer responsible for reconciliation signs into the Core
Banking System of SBI (called as Bancslink), and authorizes two entries. One
entry is to debit RTGS outward account and credit to SBI main branch, and the
second entry is to credit RTGS inward account and debit to SBI main branch.
This is done since the Belapur office acts as an agent for the Main branch located
at Nariman Point, and hence above entries become necessary.
• Now in the CBS system, the balances in the following accounts need to be
checked:
RTGS Rejected Transaction Account
RTGS Intermediate Settlement Account
RTGS Settlement Account
RTGS Outgoing Settlement Account
Bank Master Inward Account
Bank Master Outward Account
• The balances in all the above accounts should be ZERO. If the balance is zero in
all these accounts, the reconciliation process is complete for the day. The whole
process of reconciliation takes about one hour.
If however the balance in any one or more of the above accounts is not zero, then further
action needs to be taken. It is required to find out from which department the payment
generated due to which the balances are not matching. Then depending on the situation,
necessary manual adjustments have to be made in order to correct the deficiency and to
make the balance equal to zero in the concerned account. The person in charge of RTGS
in SBI recounted a recent experience wherein in an outgoing transaction from SBI the
recipient had been credited twice by mistake (once manually and once by the system). So
the concerned transaction had to be reversed by obtaining necessary permission from the
senior officials of the recipient bank. Similarly, other entries that are not reconciled and
need further corrective action are dealt on case-to-case basis.

ICICI BANK
Like any other bank, ICICI has two types of transactions in RTGS: Customer and Inter-
bank. The several modes of initiating an RTGS transaction are:
Walk-in customers: Any ICICI bank account holder can initiate request for an
RTGS funds transfer by walk-in at any bank branch.
Internet Banking: Alternatively, customers can log into their Internet banking.
Fax: In case a customer or his representative cannot personally come to the

branch, they can send a fax copy of the RTGS funds transfer request to the branch
in the specified format. However, this facility is provided ONLY to the corporate
customers who have FAX INDEMNITY with their account. Those who do not
have fax indemnity are asked to submit the original copy of the RTGS request.
Transaction flow for outward transactions

A transaction is initiated by entering the transaction details at Finacle, which is the core
banking system at ICICI. This system is used for creating and authoring an entry. From
Finacle the transactions go to the Participant Interface (PI) and then to the RBI server.
Transaction flow for inward transactions

All inward transactions received at the PI are passed through Name Matching Software.
From this software, a manager at ICICI bank can view the name of the beneficiary as
mentioned in the transaction details and against it the name of that beneficiary in the
Finacle system. Both these names have to be tallied manually and credit is allowed to the
beneficiary customer if the names match. However, if the names do not match then those
transactions are sent to the “Office A/c” where senior officials check them again.

At ICICI bank the process of reconciliation is carried out on the same day after the
special window is closed by the RBI at 7.30 pm. Reconciliation involves checking only
whether the number of transactions for inward and outward and the balance in the mirror
account maintained in Finacle tallies with the End of the day balance shown in the
Participant Interface (PI). If this balance matches, the reconciliation process is over for
the day. However if this balance does not match (which happens in extremely rare cases),
then all the transactions are checked manually against their physical instruments and it is
identified from where the mistake occurred. These are resolved by highlighting the
concerned transactions to various internal units and branches and by making necessary
manual adjustments.
Observations on these visits:
For initiation of a transaction and the transaction flow, HDFC Bank has the most
systematic process in place. The word Systematic is used because they use various
systems that perform different tasks. They have control software that checks for any
duplicate entries (a customer can mistakenly give 2 copies of the same request), and
liquidity management software that stops any transaction of a value of greater than Rs.
100 crores and takes necessary permission from the treasury department before passing
them. As far as the reconciliation process is concerned, Citibank has the most efficient
way of doing the task, as it has an automated system put in place (in MS Access) that
matches each and every entry in the RBI statement and Citibank’s internally generated
statement. Hence, the chances of errors are quite less as compared to manual
reconciliation. This also shows that Citibank has done an extensive research on how to
make its process better as compared to the other banks. Here one thing that needs to be
looked at by RBI is that many banks do not do automated reconciliation since RBI report
comes in ASCII format and cannot easily be converted into excel sheet format.

Part III: Survey on Banks’ feedback on RTGS System
This survey was conducted to get the member banks’ feedback on RTGS system,
identifying the problem areas where RBI can work towards improvement in the RTGS
system, and also to briefly understand the transaction process flow and reconciliation
process at these banks. Finally, the objective of the survey was to ask for suggestions
from the member banks for improvements in the RTGS system.
For this purpose, a questionnaire was prepared to obtain both qualitative and quantitative
information on various aspects mentioned above. The respondents were mainly the in-
charge of RTGS operations of various banks. In some cases, some specific information
related to treasury was obtained from the treasury department of these banks over the
telephone. The survey was conducted on 25 banks, and all the results shown here
represent the responses from these 25 banks only. Any exceptions to this have been
mentioned specifically against the concerned result. The banks that participated in the
survey are:
1. Citibank 14. Oriental Bank of Commerce

2. HDFC Bank 15. Saraswat Co-operative Bank
3. State Bank of India 16. Federal Bank
4. City Union Bank 17. Syndicate Bank
5. ICICI Bank 18. Dena Bank
6. United Bank of India 19. Indian Bank
7. Standard Chartered Bank 20. Kotak Mahindra Bank
8. Yes Bank 21. Bank of India
9. Bank of Baroda 22. Canara Bank
10. ABN Amro Bank 23. Corporation Bank
11. HSBC Bank 24. Union Bank of India
12. Axis Bank 25. ING Vysya Bank
13. Punjab National Bank

Classification of banks in the sample and their year of RTGS membership
Classification of Banks in the sample
Co-operative Banks
8%
Foreign Banks
16%
Foreign Banks
Private Banks
Nationalised Banks
Nationalised Banks Private Banks
48% 28% Co-operative Banks
The sample included 4 foreign banks, 7 private banks, 12 nationalized banks and 2 co-
operative banks.
Year of RTGS Membership
Year 2005
4% Year
2006
8%
Year 2004
Year 2005
Year 2006
Year 2004
88%

Number of RTGS enabled branches in India (Data taken from RBI website)
Number of RTGS enabled branches in India
ING Vysya Bank 489

Union Bank of India 2658
Corporation Bank 1047
Canara Bank 2810
Bank of India 2504
Kotak Mahindra Bank 207
Indian Bank 1599
Dena Bank 651
Syndicate Bank 2060
Federal Bank 624
Saraswat Co-op Bank 162
Oriental Bank of… 1481
Punjab National bank 4445
Axis Bank 801
HSBC Bank 47
ABN AMRO Bank 28
Bank of Baroda 1926
Yes Bank 115
Standard Chartered… 88
United Bank of India 971
ICICI Bank 1381
City Union Bank 211
State Bank of India 11544
HDFC Bank 1440
Citibank 45
0 2000 4000 6000 8000 10000 12000 14000
Series1
Observation and comments: State Bank of India has by far the largest number of RTGS
enabled branches, which is around 2.5 times of the number of RTGS enabled branches of
Punjab National Bank (the bank with the second largest number of RTGS enabled
branches). The banks among the lowest number of RTGS branches are ABN Amro Bank,
Citibank and HSBC Bank.

Volume of daily RTGS transactions (in April 2009, taking 23 working days)
Daily Average Volume
ING Vysya Bank 1950

Union Bank of India 5029
Corporation Bank 2841
Canara Bank 2688
Bank of India 4382
Kotak Mahindra Bank 1437
Indian Bank 2122
Dena Bank 551
Syndicate Bank 2005
Federal Bank 1220
Saraswat Co-op Bank 319
Oriental bank of… 3155
Punjab National Bank 8017
Axis Bank 7301
HSBC Bank 2400
ABN Amro Bank 1052
Bank of Baroda 5114
Yes Bank 807
Standard Chartered… 3471
United Bank of India 538
ICICI Bank 7347
City Union Bank 512
State Bank of India 25829
HDFC Bank 19022
Citibank 4339
0 5000 10000 15000 20000 25000 30000
Daily Average Volume
Observation and comments: State Bank of India had the largest daily volumes in the
month of April 2009, followed by HDFC Bank, Punjab National Bank, ICICI Bank and
Axis Bank (in that order). Other notable banks include Bank of Baroda and Union Bank
of India. Saraswat Co-operative Bank, City Union Bank and United Bank of India
recorded the lowest volume.

Value of daily RTGS transactions (in April 2009, taking 23 working days)
Daily Average Value (in Rs. Billions)
Saraswat Co-op Bank 21.74

City Union Bank 37.54
United Bank of India 61.82
Dena Bank 32.71
Yes Bank 30.98
ABN Amro Bank 19.23
Federal Bank 11.51
Kotak Mahindra Bank 6.95
ING Vysya Bank 23.82
Syndicate Bank 7.22
Indian Bank 9.94
HSBC Bank 13.45
Canara Bank 54.81
Corporation Bank 102.45
Oriental bank of… 44.51
Standard Chartered… 33.56
Citibank 30.10
Bank of India 24.87
Union Bank of India 163.43
Bank of Baroda 8.35
Axis Bank 119.64
ICICI Bank 2.93
Punjab National Bank 223.61
HDFC Bank 466.15
State Bank of India 114.52
0.00 100.00 200.00 300.00 400.00 500.00
Daily Average Value (in Rs. Billions)
Observation and comments: In spite of being 2nd volume-wise, HDFC Bank leads the
way in terms of value of RTGS transactions, recording a value of more than double of
that of Punjab National Bank. Next highest are Union Bank of India, Axis Bank and State
Bank of India. Surprisingly, ICICI bank is the lowest in terms of Daily average value
among the banks in the survey.

Average Value per RTGS Transaction in April 2009 (Rs. In Lacs)
Value per Transaction (Rs. In Lacs)
Saraswat Co-op Bank 1114.83

746.58
United Bank of India 2176.07
1217.07
Yes Bank 706.88
1337.73
Federal Bank 542.15
1262.24
ING Vysya Bank 1187.95
591.60
Indian Bank 3119.10
426.22
Canara Bank 683.73
1403.31
Oriental bank of Commerce 1855.10
3191.09
Citibank 588.66
3082.68
Union Bank of India 4708.14
1551.00
Axis Bank 1628.35
572.12
Punjab National Bank 865.71
2450.54
State Bank of India 2639.49
0.00 500.00 1000.001500.002000.002500.003000.003500.004000.004500.005000.00
Value per Transaction (Rs. In Lacs)
Observation and comments: In terms of Average Value per transaction, Union Bank of
India is the largest, followed by Standard Chartered Bank, Indian Bank and Bank of
India. State Bank of India and HDFC Bank are at 5th and 6th position respectively. The
banks with the lowest average value per transaction are HSBC Bank, Federal Bank and
ICICI Bank.

Various means of initiating an RTGS transaction
Various means of initiating an RTGS transaction
Others 5
Email 4
Fax 18
Internet
17
Banking
Walk-in 25
0 5 10 15 20 25 30
Number of Banks
Observation and comments: All the 25 banks in the survey have a walk-in facility, i.e. a
customer or his representative can walk-in to any of their RTGS enabled branches and
apply for initiating an RTGS transaction. 17 banks (68% of the sample) have Internet
banking facility, through which customers can log-on to their Internet banking module
and do an RTGS transaction himself. 18 banks (72% of the sample) have the fax facility,
whereby customers can send in a fax to the bank in case they are not able to come in
person, provided they have fax indemnity and the original RTGS request reaches the
bank before the end of the day. Only 4 banks in the sample provide email facility, while
other banks do not provide this facility. Other means include phone banking (Citibank),
Retail banking (HDFC bank), Cash Management Product (State Bank of India), Standing
Instruction (City Union Bank) and Straight Thru Bank (Standard Chartered Bank).

Initiation of an RTGS transaction and the process flow
All the 25 banks covered in the survey first enter the RTGS transaction details into their
internal system (usually their Core Banking System) to initiate an RTGS transaction. The
only exception to this is HDFC Bank, which has a control software used to identify
duplicate entries and for reporting to the treasury department. From the Core Banking
System, the banks send the information either to any other software that they might be
using, or to the Participant Interface (PI) provided by the RBI.
Whether any other software is used
No
48% Yes
Yes
52% No
Observation and comments: 13 of the 25 banks covered in the survey use another
software apart from the Core Banking System. 9 banks out of these 13 use software for
liquidity management, which keeps a check on the banks’ liquidity and helps them in
determining when to use the Intra-Day Liquidity from RBI. Other notable software used
by banks include: (i) Name Matching Software in ICICI Bank checks the names as
mentioned in incoming RTGS messages against those in their records. (ii) Quaestor
Payment Hub (QPH) is used by some banks, which acts as an interface between the PI
and the Core Banking Solution. (iii) Structured Financial Messaging Service (SFMS) is
also used by some banks.

RTGS Reconciliation process
In this comparison, the objective is to briefly understand the process adopted by banks to
carry out their daily RTGS reconciliation. The questions in this regard pertain to when
the banks do their RTGS reconciliation, how the process is carried out, whether the
process is manual or automated, how any mismatch is identified and how it is resolved.
The graph below pertains to when the bank carry out their reconciliation process.
RTGS Reconciliation happens on
Next Day
30%
Same Day
Next Day
Same Day
70%
(Note: Data for Indian Bank and Kotak Mahindra Bank not available)
Observation and comments: Out of the 23 banks that answered this question, 16 banks
do their reconciliation on the same day after RBI closes the special window (7 - 7.30 pm).
The remaining 7 banks do their reconciliation on the next day. Some banks do the process
manually, while some have automated process (through the use of a system). Whether the
process is manual or automated is highlighted in the next graph.

Reconciliation process
Automated
13%
Manual
Automated
Manual
87%
(Note: Data for Indian Bank and Kotak Mahindra Bank not available)
do manual reconciliation, while 3 banks have automated process for reconciliation. Out
of these 20 banks that do manual reconciliation, 16 banks do in on the same day, usually
by matching the number of entries for inward and outward transactions and their
respective balance from their Core Banking System / Liquidity Management software
and from Participant Interface (PI). If the balances are matching, the process is over;
otherwise the causes of mismatch are found out and resolved accordingly.
Only 3 banks - Citibank, HSBC Bank and United Bank of India have automated process
for Reconciliation. Of these, United Bank of India does this through MS Excel; Citibank
uses MS Access, while HSBC Bank has developed an internal system especially for
reconciliation purposes. The process for these 3 banks is to knock off common
transactions from internal statement and RBI statement and look for those transactions
that need resolution. They are then resolved by highlighting them to various units and
following up with them.

Whether the Current timings for RTGS window are adequate/sufficient.
RTGS Window timings
Not Adequate
32% Adequate
Not Adequate
Adequate
68%
consider the RTGS window timings to be adequate/sufficient (for Customer and Inter-
bank transactions as well as the special window). The remaining 8 banks feel an
extension in timings should be given. The ideal RTGS window timings according to these
banks are mentioned below:
• During month ends: According to HDFC Bank and HSBC Bank, timings for
Customer transactions during month ends should be extended at least till 5.30 pm.
• On Saturdays: According to Bank of Baroda, Oriental Bank of Commerce,
Syndicate Bank, Canara Bank and Citibank, the timings for Customer transactions
on Saturdays should be at least till 1 pm.
• On Weekdays: According to Axis Bank, Union Bank of India and ING Vysya
Bank timings for Customer transactions on all weekdays should be till 6 pm.
• Others: According to Canara Bank the special window should be done away with.

Whether banks face any problem in connectivity to RBI server
Whether any Connectivity problem is faced
No
44%
Yes
No
Yes
56%
said that they face connectivity problem to RBI server. But most of these banks face
connectivity problem in very rare cases, which is as low as once or twice in a month.
Standard Chartered Bank, ABN Amro Bank and Indian Bank face connectivity problem
only when volumes are high (particularly during the month ends). The only notable
responses to this issue were that of State Bank of India and Yes Bank. SBI faces
connectivity issue every alternate Saturday on an average, while Yes Bank faces
connectivity issue at least twice a week. However, considering the responses from all the
banks in the survey, this issue is quite normal and in general banks face the connectivity
issue only sometimes. It must also be noted that many banks are wary about connectivity
becoming a problem when the High Value clearing is done away with and many of the
transactions from High Value converting to RTGS, thereby increasing the volumes of
RTGS transactions.

Other Parameters
• Other Banks associated with these banks for RTGS: None of the banks in the
survey has any other bank associated with it to carry out RTGS transactions. The
only exception is the Union Bank of India, which said that they have a tie-up with
Bank of India to carry out RTGS transactions on their behalf at the time of crisis.
• Charges from customers for RTGS transactions: All the 25 banks in the survey
charge the same amount from their customers for RTGS transactions as mandated
by the RBI. For transactions of a value of less than Rs. 5 Lacs, Rs. 25 per
transaction is charged; and for transactions of a value of greater than Rs. 5 Lacs,
Rs. 50 per transaction is charged from the customers (plus the applicable service
tax). However, some banks do not charge anything from some customers for
RTGS transactions. They are: HDFC Bank, ICICI Bank, Standard Chartered
Bank, Yes Bank (Internet Banking is free), Kotak Mahindra Bank and Citibank.
Hence we see that most of the private banks in the survey do not charge anything
from some premium customers for carrying out RTGS transactions.
Issues with RBI
None of the banks in the survey said that they have any issue with RBI or any other bank
as far as RTGS is concerned. Only Citibank mentioned that for most of the days in the
month of April, it did not receive the RTGS statement from RBI. But it was the first time
it happened in the last 5-6 years and that too due to some technical problem, so they
consider it to be a one off thing and do not really treat this as an issue. The only other
bank to mention any issue was United Bank of India. This bank also said that sometimes
they do not receive the RBI statement via email. The most recently it happened was on
8th, 9th and 10th June 2009. Looking at the overall picture, it can be said that the RTGS
member banks are more or less satisfied with the way things are going in RTGS. Some
suggestions have been given by some banks for overall improvement in the RTGS
system, which have been mentioned herein.

PERSONAL OBSERVATIONS AND RECOMMENDATIONS
During the visit to various banks and interaction with various representatives of these
banks, it was felt that there are some things that the banks are concerned/apprehensive
about in RBI’s RTGS System. The following points give an overview of those issues and
they can be resolved if it is feasible on RBI’s part to do that:
• Due to the High Value Cheque Clearing being phased out by RBI, the banks
expect a huge jump in their volumes of RTGS transactions. At the same time,
some banks are apprehensive whether RBI’s infrastructure would be adequate
enough to handle such large volumes, and they recommend RBI to be equipped
and ready for such eventualities.
• Three of the banks in the survey said that they sometimes find it very difficult to
co-ordinate with various banks in case some of their RTGS transactions are not
settled or some clarification is required from other banks. They also said that RBI
has been taking initiatives to get the details from all banks regarding their RTGS
cell, the name of the contact person, contact details, etc.; but it has never been
implemented properly. All such details from all RTGS member banks should be
put up on the RBI website.
• The timings for RTGS windows is mostly adequate (as told by various banks), but
5 banks in the survey want the Customer timings on Saturdays to be increased till
1 pm, since on Saturdays the branches start operations at about 9.30 to 10 am and
they feel the timings are too short to carry out Customer transactions on
Saturdays. If feasible, it can be increased to 1 pm.
• A few banks also mentioned that they cannot do automated reconciliation since
the RBI statement does not come in excel format and hence lot of manual wok is
involved. If the technicalities permit, the RBI report can be sent in as excel format
to make the banks’ job easier.

LIMITATIONS OF THE STUDY
One of the biggest limitations of this study was the non-availability of recent data for the
country wise RTGS comparison. All the data pertaining to the volume and value of
RTGS transactions carried out by various countries is for the year 2007. The data for
2008 was available for only a very few countries, hence a detailed comparison could not
have been made for the year 2008. India’s volume and value of RTGS transactions has
increased by huge margins currently as compared to that in 2007, hence a recent
comparison could have given a different picture. For many growing economies such as
China and South Africa, the data was not available even for 2007; hence these countries
had to be left out of this comparison. As far as the survey of RTGS member banks is
concerned, the major limitations were covering only 25 banks out of 102 member banks
and non-availability of information in some of the parameters for some banks.
SCOPE FOR FUTURE IMPROVEMENTS
For future improvements in this project, it is necessary to have the recent data (preferably
for the year 2008 or 2009) so as to give a more meaningful comparison of the
performance of RTGS for various countries. This information could be available in a
report by World Bank titled “World Bank, Payments systems worldwide: a snapshot -
outcomes of the global payment systems survey 2010 (Vol.1&2)”, which is expected to
release in January 2010. The 2008 edition of this report had data for 112 countries’ RTGS
performance (value and volume wise) for the year 2006, so the same can be expected for
the 2010 edition of the report. The report is easily downloadable from the World Bank
website. Other reports by European Central Bank, International Monetary Fund,
Committee of Payment and Settlement Systems (CPSS) of the Bank for International
Settlements (BIS) can also be very useful. To further improve on the survey on RTGS
member banks, more number of banks can be covered in future to give a better
representation of the overall population.

APPENDIX – QUESTIONNAIRE USED FOR THE SURVEY
Name of the Bank ________________________________________________
1. Since when have you been an RTGS Member bank? _____________________
2. Number of RTGS enabled branches of your bank in India. _____________________
3. What are the different means through which a customer can apply for initiating an
RTGS transaction at your bank? (Tick as many as applicable)
Walk-in at an RTGS enabled branch
Internet Banking
Fax
Email
Any Other (Please specify) _________________________
4. For initiating an RTGS transaction, do you feed the transaction information directly to
the Participant Interface (PI) provided to you by the RBI? (If yes, go to Question no. 6)
Yes
No
5. (a) Which other system/software do you use to enter information for initiating an
RTGS transaction? ________________________________________________________
(b) What are the functions/uses of this software? ______________________________
________________________________________________________________________
6. Any other system/software used by your bank for any other purpose related to RTGS?
What are the functions/uses of this software? (Leave blank if not applicable)
________________________________________________________________________
________________________________________________________________________

7. Do you have a backup in case your main RTGS unit at Mumbai cannot work due to
any reason? (If no, go to Question no. 10)
Yes
No
8. In which places do you have the backup?

Within Mumbai (Specify the location) ______________________________
Outside Mumbai (Specify the cities) ______________________________
9. (a) How often the backup servers have been utilized for undertaking the job of primary
servers? ________________________________________________________________
(b)When was the last time these units had to work? ________________________
________________________________________________________________________
10. When do you do the RTGS Reconciliation?

Same day after RTGS window closes
Next day
11. How is the reconciliation process carried out? (Select the appropriate option and
mention briefly about the reconciliation process)
Manually ______________________________________________________
_____________________________________________________________________
An in-house application specially developed for reconciliation purpose ______
_____________________________________________________________________
Any other ______________________________________________________
_____________________________________________________________________
12. How do you identify the un-reconciled transactions that are pending resolution?
________________________________________________________________________
________________________________________________________________________

13. How many un-reconciled transactions are identified on an average on a daily basis?
________________________________________________________________________
14. How do they get resolved?

________________________________________________________________________
________________________________________________________________________
15. How long does it take do the complete reconciliation process? __________________
16. Is any other bank/s associated with you, which participates in the RTGS system
through your bank? Yes / No
If yes, please specify the name/s of these bank/s ______________________________
17. Do you think the current timings for RTGS window specified by RBI are
convenient/adequate? (Please tick the appropriate option) Yes No
For Customer Transactions
For Inter-bank transactions
Special Window (7 – 7.30 pm)
18. (Answer this Question only if the answer to Question no. 17 is “No” for any of the
three options) What should be the ideal RTGS window timing according to you?
For Customer Transactions ______________________________
For Inter-bank transactions ______________________________
Special Window (7 – 7.30 pm) ______________________________
19. What is the amount that you charge your customers for carrying out each RTGS
transaction through your bank?
Charges (in Rs.)
For transaction amount of Rs. 1 Lac to Rs. 5 Lacs __________________
For transaction amount of greater than Rs. 5 Lacs __________________

20. What is the Average volume of RTGS transactions handled by your bank in a day?
________________________________________________________________________
Of these, Number of Inward transactions ______________________________
Number of Outward transactions ______________________________
21. What is the Average value of RTGS transactions handled by your bank in a day?
________________________________________________________________________
Of these, Value of Inward transactions ______________________________
Value of Outward transactions ______________________________
22. Do you face any problem related to connectivity to RBI’s RTGS server? Yes / No
If yes, how often do you face this problem? (Please be as specific as possible)
________________________________________________________________________
23. Any other issues with RBI related to RTGS only? (Please specify in detail)
i. __________________________________________________________________
__________________________________________________________________
ii. __________________________________________________________________
__________________________________________________________________
24. Any issues/problems with any other bank/s related to settlement of RTGS
transactions? ____________________________________________________________
________________________________________________________________________
25. Please provide any suggestions for improvement in the RTGS system.
i. __________________________________________________________________
ii. __________________________________________________________________
Name of the Respondent ____________________ Signature _____________________

Designation ____________________ Date _____________________

BIBLIOGRAPHY
The various sources of information used in this project are:

• Various materials provided by the project guide on the various payment systems
operating in India (including RTGS). Apart from this material, the RBI website
www.rbi.org.in and the RBI website for staff training www.ekp.rbi.org.in were
also used.
• For the study on comparative analysis, the website of the Bank of International
Settlements www.bis.org was the main source of information. The links on the
web page www.bis.org/cpss/paysysinfo.htm were used to find the necessary
information.
• A Report by the World Bank “World Bank, Payments systems worldwide: a

snapshot - outcomes of the global payment systems survey 2008 (Vol.1&2),
January 2008” was referred to.
• Various reports by the Committee on Payment and Settlement System (CPSS) of

the Bank for International Settlements titled “Statistics on Payment and
Settlement Systems in Selected Countries – Figures for 2007”; “Payment and
Settlement Systems in Selected Countries”; “New Developments in Large Value
Payment Systems”, etc. were also referred to.
• The RTGS performance report on the website of European Central Bank was used
to find the data for the Euro Zone Countries.
• Websites of other banks such as Citibank, State Bank of India, HDFC Bank, etc.
are also referred to sometimes for general purposes.
• Apart from this, search engines www.google.com, www.en.wikipedia.org and

various other search engines were also used for finding any miscellaneous
information.

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REAL TIME GROSS SETTLEMENT

(RTGS) PAYMENT SYSTEM

SIP project report submitted in partial fulfillment of

Institute of Management Technology, Nagpur

I am sincerely grateful to Reserve Bank of India for providing me an opportunity to be a

SIP report on RTGS Payment System Page 2

S. No. Topic Page No.

3 Components of the Indian Payment System 7

4 Real Time Gross Settlement (RTGS) Payment System 9

5 Objectives of the Study 14

7 Functional working of the Deposit Accounts Department 16

9 Tabulation and Findings 19

10 Personal observations and Recommendations 47

11 Limitations of the study 48

12 Scope for improvements 48

13 Appendix – Questionnaire used for the survey 49

SIP report on RTGS Payment System Page 3

SIP report on RTGS Payment System Page 4

A Payment System is a system used to settle financial transactions in various markets

SIP report on RTGS Payment System Page 5

SIP report on RTGS Payment System Page 6

Components of the Indian payment system

Retail Systems Large Value Systems

Paper Based Electronic Paper Based Electronic

MICR ECS NEFT SEFT High Value Inter-bank

PDO-NDS/SSS Forex Clearing RTGS

Now let us examine some of the important payment systems in brief:

SIP report on RTGS Payment System Page 7

• Centralized ECS (CENECS) – This service is available in 15 centers. Under

• National Electronic Funds Transfer (NEFT) – NEFT system is a nationwide funds

• Inter-bank Clearing: Inter-bank payments are usually settled among banks by

SIP report on RTGS Payment System Page 8

The distinction between the different types of payment systems is:

SIP report on RTGS Payment System Page 9

• Y-Topology: The Indian RTGS system is based on the Y-Topology and an

SIP report on RTGS Payment System Page 10

• Interaction with Net Settlement Systems: Multilateral Net Settlement Batch

SIP report on RTGS Payment System Page 11

SIP report on RTGS Payment System Page 12

• Message to SSS - Once it is ascertained that a queued transaction is eligible for

• Securities Collateral - If sufficient cover of securities is available in the

SIP report on RTGS Payment System Page 13

The objectives of this project are as follows:

SIP report on RTGS Payment System Page 14

1. Monetary Policy 6. Overseeing the payment system

SIP report on RTGS Payment System Page 15

Sections of the Deposit Accounts Department (DAD):

SIP report on RTGS Payment System Page 16

The functions of the Department include the following:

Relevance of this project in context of overall company objectives and strategies:

SIP report on RTGS Payment System Page 17

SIP report on RTGS Payment System Page 18

Part I: Comparison of Indian RTGS with that of other major countries

In terms of overall comparison for 75 countries, India’s rank in terms of various

• Volume of RTGS transactions: 23rd out of 75 countries.

SIP report on RTGS Payment System Page 19

• Countries that implemented their RTGS system prior to 1997: Out of 18

SIP report on RTGS Payment System Page 20

Volume of transactions in 2007 (in Thousands)

Sri Lanka 205.63

West African States 281.99

Hongkong (EURO CHATS) 40.00