How many times have you wished that the salary cheque you deposited in the bank got cleared in a day instead of the usual three for local cheques -- or more than a week for outstation cheques?
Your wish is set to come true soon, thanks to the real-time gross settlement system or RTGS.
A global standard for managing fund transfers, RTGS reduces risks and boosts investor confidence, apart from helping companies manage their working capital requirements more effectively.
It short, it also allows companies to collect funds from customers and move money to and from plant sites faster, thereby helping their bottomline's cause.
The current archaic settlement system in India is reported to cost 0.2 to 03 percentage points in gross domestic product savings growth. Under it, payment instructions are processed throughout the day but inter-bank settlement takes place only later -- typically at the end of the day.
RTGS was kicked off on March 26 with State Bank of India, HDFC Bank, Standard Chartered Bank and Saraswat Co-operative Bank as part of the initial network.
Today, there are 23 banks conducting transactions on the system. Bank of Baroda, Punjab National Bank, Canara Bank, Union Bank of India, Indian Overseas Bank, Central Bank of India, Dena Bank, BNP Paribas, IndusInd Bank, ING Vysya Bank are all part of the system. Of the total 23 banks, the first batch of four banks have already embarked upon customer transactions.
Customer benefits:
As far as pricing of the transaction is concerned, it gels well as compared to the current system of demand or bank draft, which is one of the most prevalent ways for transferring money by individual retail customer.
When RTGS is fully functional, money will reach your account on Day Zero itself or the very day a demand draft is presented to a bank. At present, this process takes about three days. Not only that, the system also cuts out the risk involved in shipment of physical demand drafts.
The RBI will charge a fee Rs 25 per leg of an RTGS deal, or Rs 50 for two legs - one from the bank to the RBI hub and the other from the RBI hub to the corresponding bank.
One leg constitutes the transfer of a consolidated amount (value of various instruments including total cheques presented by the bank) to be cleared. Currently, the RBI does not charge any transaction fees.
The cost to the customer:
Banks will charge an RTGS transaction fee depending on their relationship with the customer. Bankers said prices will vary from Rs 50 to Rs 200 per transaction.
Pricing terms could be negotiated and special offers could be given if a customer maintains a permanent account with the bank in the form of savings or current account or has housing loan or credit card facility with the specific bank. The pricing will also differ if the amount is more than Rs 1,00,000.
Another reason for Indian banks to hike their fees is to make up for loss of 'float money' or interest earned while funds take up to five days to move from one account to another.
You see, commercial banks clear cheques worth roughly Rs 25,000 crore (Rs 250 billion) a day, and they earn 4.5 per cent annually by deploying those funds on an overnight basis.
But float money will fall with the introduction of RTGS, so banks will have to recover not only the transaction fee that the RBI will be charging them, but would also have to compensate for the loss of float-based earnings.
Banks, which earn an average six per cent of their total income from fees, charge retail customers between Rs 10 and Rs 20 to send Rs 10,000 to a rival bank in another city.
Moreover the banks will charge a higher fee if the funds are flowing out of the bank or the customer is making a payment from his bank's account. Conversely, the fees will be less if the funds are coming into the bank.
The advantage for companies:
Apart from cutting down on paper work, big companies are expected to save over Rs 2,000 per Rs 1 crore (Rs 10 million) worth of transactions using RTGS, a global standard for managing fund transfers.
It reduces the risk of counter-party default and boosts confidence, apart from helping companies manage their working capital requirements more effectively. It short, it allows companies to collect funds from customers and move money to and from plant sites faster.