NOTE: SBINEWS DOES NOT PERMIT CIRCULATION OF ATTACHMENTS. ATTACHMENTS, IF ANY, CIRCULATED WILL BE ONLY BECAUSE OF VIRUSES. PLEASE,THEREFORE, IGNORE ATTACHMENTS IF ANY IN SBINEWS MESSAGES ************************************************************************ What is RTGS? Real Time Gross Settlement - basics (Source: PNB Staff College, CBD Belapur) The current payment system involves settlement of payments on a "settlement day" and interest is invariably computed to accrue on a daily basis. Even in the wholesale markets for foreign exchange and money markets contracts, 'spot' transactions mean two-business days. Settlement for clearing cheques presented to the clearing houses takes place on a netting basis at a particular time either same day or on the next day. These conventions made sense, when book-keeping was done manually. This system gives rise to risks such as credit risk, liquidity risk, legal risk, operational risk and systemic risk. A systemic risk is the risk that the inability of one of the participants to meet its obligations, or a disruption in the system itself, could result in the inability of other system participants or of financial institutions in other parts of the financial system to meet their obligation, as they become due. Such a failure could cause widespread liquidity or credit problems and as a result threaten the stability of the system or of financial markets. The above apply to payment systems which would trigger or transmit systemic disruptions in the financial area because of the size or nature of individual payments, which they handle because of the aggregate value of the payments processed. What is RTGS? RTGS is a software package which provides online settlement of payments between financial institutions. In this system payment instructions between banks are processed and settled individually and continuously throughout the day. This is in contrast to net settlements where payment instructions are processed throughout the day but inter-bank settlement takes place only afterwards typically at the end of the day. Payee banks and their customers receive funds with certaintly, or so-called finality, during the day, enabling them to use the funds immediately without exposing themselves to risk. A lag between the time at which information is made available to receiving banks and the time at which settlement takes place may have important risk implications in large fund transfer systems. To initiate a funds transfer, the sending bank dispatches a payment message which is subsequently routed to the central bank and to the receiving bank as the system processs and settles the transfer. RTGS system settles payments on a transaction-by-transaction basis as soon as they are accepted by the system. RTGS systems do not create credit risk for the receiving participant because they settle each payment individually, as soon as it is accepted by the system for settlement. RTGS system can require relatively large amounts of intraday liquidity because participants need sufficient liquidity to cover their outgoing payments. The cost of intraday liquidy depends on variables such as amount required, the opportunity cost of maintaining liquid balances and the cost of intraday credit. RTGS - Salient features It will use the INFINIT network of RBI. SFMS will be used as the secured messaging systems. Banks having a core banking systems can use their systems for messaging purpose but will have to develop an interface between their core banking systems and the RTGS application. Participants will have to maintain a dedicated RTGS settlement account with RBI for outward and inward RTGS payments. This account will be an intra day account. The account will be funded at the start of day from a current account held with RBI, Mumbai. The balance in this account at the end of day are swept back to the current account and thereby zeroing the RTGS settlement account. Payment transactions emanating from a participant are processed by the RTGS strictly in FIFO basis. However to enable the participants to take care of urgent or time critical payments and to enable more effective fund management, the system allows the participants to assign priorities to their payment messages and thereby enabling aj particular transactions to be processed before another transactions, which was submitted earlier to the system. Payment transactions emanating from a participant are ordinarily expected to be settled immediately after it is received. However the possibility of some transactions not being immediately settled cannot be completed ruled out. To meet such exigencies, the proposed RTGS system provides for maintenance of payment queues in which payment transactions will be held in FIFO order within priority pending settlement. In order to meet intra day liquidity, Rbi at its discretions and under terms and conditions to be specified from time to time will provide liquidity against fully collateralized assets (Govt Secs) at a charge per transactions. This will have to be repaid before the end of the day. Resolutions mechanisms are inbuilt in the system to resolve grid locks. The Multilateral Net Settlement(clearing) will also be settled in the RTGS system. Hardware/Software requirements for the participants Each participant must have a payment interface gateway server. This will be the interface to the IFTP/RTGS system of RBI. The PI software will be supplied by RBI. The banks should procure the hardware which will be specified by RBI. Since the INFINIT network is not provided adequate bandwidth presently, participants are advised to get a dedicated lease line link between their PI gateway and the local RBI Hub. Security Features: It is a highly secured system using PKI. This includes Signing and encryption of hash. Decryption and verification of hash Signing of message Verification of message Each participant will be a RA and the CA(IDRBT, RBI) will issue the digital certificates. An online backup (mirror) system will be set up in Mumbai and the DRS will be at Hyderabad office of RBI. Road Map May 2003 Preparation for participation June 2003 Demonstrable RTGS system will be set up at RBI BTC. This system will be available for participant banks to test and practise on the RTGS system. October 2003 Stand Alone RTGS systems will be installed at RBI Mumbai January 2004 Fully Integrated RTGS system will be installed ---------------------------------------------------------------------- Email From ""Rajendra S. Pai" <rajendra.pai@xxxxxxxxx>" was security checked by 3.90 version of CxProtect(tm) On: mail_store at: 09:51:25, 23-Jan-2004 Friday ---------------------------------------------------------------------- *************************************************************************** Mailing list (sbinews@xxxxxxxxxxxxx) related information: News/articles about SBI and Banking related matters published in the print media, Internet etc will be circulated through this Mailing List. The messages in this list will help in improving awareness of SBI and its activities vis-a-vis the happenings in the Banking industry. This should be of help to all staff members of SBI, particularly those who are preparing for promotional written tests/interviews/group discussions. Subscription to this Mailing List is simple and FREE. Please check the procedure below. Please share this information with other colleagues/branches that could be interested in subscribing to this Mailing List. 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