Difference between RTGS and NEFT

Key Difference: 'RTGS' stands for Real Time Gross Settlement.  It is an online system through which the funds can be transferred from one institution to the other in real time. ‘NEFT’ stands for National Electronic Fund Transfer. In ‘NEFT’ settlements, transactions are settled in batches during specific timings.

NEFT and RTGS are the terms that are used in context to bank transactions. In broader term, both these terms are related to electronic money transfer from one bank to another bank. In India, both NEFT and RTGS mechanism are maintained by Reserve Bank of India to ensure the security of transaction.

'RTGS' stands for Real Time Gross Settlement. As the name indicates, settlement in RTGS is done on a real time. It is an online system through which the funds can be transferred from one institution to the other. Banks are important institutions that use this kind of settlement. This electronic payment system is normally controlled by the central bank of a country. This involves no physical exchange of money but the values in the electronic accounts are changed.

It is the fastest way in which the money can be transferred within the country. All transactions sent through RTGS are queued and submitted on the basis of ‘First in first out’. RTGS enabled banks can also prioritize the transactions according to the requirement. Transactions are settled on one to one basis without clubbing with other transaction. Transactions between banks are settled on a continuous gross basis (on a transaction by transaction basis) with the Central Bank. In RTGS the transactions are processed continuously. Therefore the transfers are quick and very useful during emergencies. It is a real time processing system thus, there is no waiting time attached with this system. It also helps in giving a clear picture of the accounts at any instance. The World Bank also offers help to countries who want to implement the system. RTGS systems are generally secure as they are designed by keeping the international standards in mind. Goals of RTGS are:

1. To reduce settlement risk due to settlement lag

2. To reduce credit risk

3. Speed up the process of high value payments

4. To give accurate position of the participating bank

‘NEFT’ stands for National Electronic Fund Transfer. NEFT enables the individuals or institutions to electronically transfer the funds from any bank branch to any individual or institutions that may have an account in any other bank branch in the country participating in the Scheme. This system was launched in November 2005 in India. In India, Reserve Bank of India ordered all banks of India to migrate to NEFT by mid December 2005. A bank branch must be NEFT-enabled to use the NEFT funds transfer network. Individuals or institutions which maintain accounts with a bank branch are eligible for using NEFT. Even such individuals who do not have a bank account can also deposit cash at the NEFT-enabled branches with instructions to transfer funds using NEFT.

NEFT is an alternative settlement scheme under which the settlements happen in a batch process. Typically, at the end of the day the settlement is done. However, in some countries, the settlement in batches can be done twice. Thus, the payment is not quick and the waiting time is more in comparison to RTGS.

 

RTGS

NEFT

Definition

Transactions are processed and settled in real time and on gross level

Transactions are processed and settled in batches, typically at the end of the day or at specific intervals within the day.

Money Transfer System

Swifter

Comparatively slow

Transactions

Focus on high value transactions

Usually any transaction

Liquidity

participating banks pay only the net difference of debit and credit

each transaction may be settled individually

Amount that can be transferred (India) Minimum 2 lakhs, no maximum No minimum, no maximum
Charges (India)

Amount               Charge

Two to five lakhs: Rupees 30

Above five Lakhs: Rupees 55

Amount                          Charge

Upto Ten thousand: Rupees 2.5

> ten thousand and upto One Lakh: Rupees 5

>one Lakh and upto two Lakhs: Rupees 10

>two Lakhs: Rupees 25

 

Image Courtesy: kanyakabank.in, bankingawareness.com

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