One of the prime functions of the banking system is to circulate money in the economy and settle payments. These payments can range between clients, foreign settlements, or between banks. Often the high-value, low-volume nature of payments requires higher security and instant process which are typically unavailable with traditional payment methods like NEFT, NPSB, or BACH. And that is where RTGS comes in. Let’s look at what RTGS is and how it works in the Bangladeshi banking system.  What is RTGS?  The term RTGS stands for "Real-Time Gross Settlement". It is a system devised for large-value interbank funds transfer operating in real-time. RTGS is different from the conventional funds transfer channel in the sense that it is instant and irrevocable.  Conventional transfer systems like BEFTN and NPSB use a batch clearance system that bundles several transactions and clears them at a time. These processes are time-consuming, often taking several hours to several days to settle a transaction.  Read More: Which are the Top 10 Strongest Currencies in the World in 2023? While undertaking high-value transfers, there is always credit risk in the case of batch settlements. For example, a fund transfer failure in the case of BEFTN or NPSB may result in the payable sum being halted for up to 45 days in the gateway. In the case of large-value transactions, such risks may have serious financial consequences.  Why is RTGS better than other funds transfer methods? There are several reasons why RTGS is a better funds transfer method, even if there are some caveats to it.  Speed RTGS transfers are settled in real-time and in gross amounts. Well, what does this actually mean? In essence, unlike every batch transaction that happens between banks, RTGS is regulated by the central bank.  The central bank debits funds from Bank A and credits it in Bank B. This happens instantly without the need for the actual movement of money from Bank A to Bank B.  Read More: How to Build a Successful Company? Security RTGS transactions use Swift routing through the central bank. The central bank acts as the intermediary and uses a closed channel for transaction settlement. Moreover, the gross settlement amount ensures that there is no chance of transaction failure whatsoever.  High-value transfers RTGS specializes in high-value and low-volume transactions. It is most commonly used for gross business transactions, government payments, and security settlements. However, being a high-value transfer means there is a very steep minimum transfer amount for each RTGS settlement.  Finality Even though the central bank acts as the intermediary, the transactions completed through RTGS are final and irrevocable. Once the transaction is completed, it is impossible to reverse the transaction in any way by any party. This provides security against fraud or wire-tagging in transactions.  Read More: Silent Partner vs Investor in Business: Know the Difference, Pros and Cons How does the RTGS system work?  The RTGS payment system works much like most other transaction systems with a few exceptions. It starts with: Initial Request  The RTGS payment procedure starts with the sender requesting a transfer of the amount to a certain beneficiary account. The sender is required to input the amount to be transferred and beneficiary account details.  Verification Process  The sender’s bank will then cross-check two things – whether the sender’s account can cover the amount to be sent and also verify the beneficiary’s banking details.  Read More: How to Identify Fake Currency Notes in Bangladesh Transfer to RTGS  The transaction details are then sent from the sender’s bank to the RTGS system. This closed channel system is controlled by the central bank. Here, the central bank debits the amount from the sender and credits it to the beneficiary’s account.  Settlement  The settlement occurring in the RTGS system is gross. Meaning each individual transfer request is fulfilled individually by the central bank and the associated scheduled banks. This completely removes the credit risk.  Confirmation  The RTGS system confirms the sender and the beneficiary of the transaction and shows the debit and credit information in real-time.  Read More: How to safely send remittance to Bangladesh? Limitations of the RTGS System  The RTGs system was first introduced in 1985 with just three central banks. Today, over 100 countries and their central banks across the globe use the RTGS system. Even though RTGS is a popular transaction method, it comes with its limitations.  The first limitation is the high minimum transaction limit. In the case of RTGS in Bangladesh, the minimum limit is 1 Lac BDT with a maximum of 5 Lac BDT per transfer. The upper limit is only for personal RTGS transfers. In the case of government payment or interbank foreign currency transfer, there is no upper limit.  There is another issue regarding the liquidity crunch. Every scheduled bank can keep 10% of their scheduled deposit as liquid assets with the Bangladesh Bank treasury and circulate the rest as loans. In the case of high-value high-volume transactions, banks with lower liquidity may not be able to follow through with the debit process.  Read More: Explainer: What it means to let taka float Even though the sender may completely cover the debit, the liquidity crisis may force banks to default on the RTGS request, resulting in failed transactions. It also has a negative economic signal regarding the liquidity state of the bank.  RTGS in Bangladesh  RTGS was formally inaugurated in Bangladesh on 29 October, 2015. Since then, Bangladesh Bank has connected 60 scheduled banks along with 19 NBFIs into the RTGS system. As of September 2022, Bangladesh Bank has also introduced scheduled transfers for foreign currency interbank with no upper limit. In 2022, the RTGS system settled 7,977,052 transactions amounting to 5,156,432 crore BDT. There were additional settlements of 5.17 million USD, 15,822,810 EUR, and 204,261 GBP.  Read More: Digital Currency: Benefits and Risks of the Cashless Economy in Bangladesh A single sender account can request up to 5 RTGS transactions per day, taking the max RTGS limit to 25 lacs BDT per day.  For each transaction, most banks charge 100 BDT as a processing fee. Additional VAT will be included in the transfer amount as per government regulation.  Most RTGS transactions begin at 10 AM and close by 3 PM each banking day. RTGS cannot be utilized on holidays.  Read More: Can You Travel Abroad Without Buying US Dollars? Final Words  The RTGS system has been a breakthrough in the fund transfer scenario of Bangladesh. While it's not exactly the system for regular day-to-day fund transactions, it provides a secure way for high-value low volume transactions. RTGS essentially brings an added layer of security to the transaction process, barring the credit risk threats and ensuring irreversible gross settlement instantaneously.