Departments / Real Time Gross Settlement (RTGS) System  


Real Time Gross Settlement Systems (RTGS) are mechanisms that enable banks to make large-value payments to one another in real-time using online telecommunication facilities as well as state-of-the-art computer systems. The payments are settled on gross basis in real time thus minimizing the systemic risks that are inherent in large-value net settlement systems.

<The Legacy Settlement System in Pakistan for Large Value Payments
In Pakistan banks are required to hold current accounts with the State Bank of Pakistan (SBP) which are primarily used to settle large value inter-bank fund transfers between Banks and to meet certain statutory requirements. Every bank/financial institution that has an account with SBP is issued with a paper cheque book which is used to withdraw/transfer funds from its account. The paper cheques were presented physically at SBP counters daily by Banks' treasuries to settle their payment obligations against other Banks. These cheques were then posted into SBP’s banking system to debit the remitting Bank and credit the beneficiary Bank usually by the end of day. Thus the nature of settlements taking place at SBP in the legacy system might be classified as end of day gross settlement system assuming significant systemic importance due to the large value of payments handled and the dependence of other payment systems in the country on its smooth functioning. This system was prone to various types of risks affecting the overall efficiency of the banking system (like systemic risk, settlement risk, liquidity risk).

RTGS in Pakistan
Keeping in view the global trend in payment systems development and the growing payments market in the country, SBP took the decision to implement the RTGS primarily with assistance from the World Bank.

PRISM). Using this system, the banks holding accounts at SBP are able to operate their accounts in real time from their own premises via computerized network between SBP and the participating Banks. With RTGS, Banks are able to settle with finality their large value transactions affecting their accounts at SBP (e.g. inter-bank lending/borrowing) immediately, provided sufficient balance is available in their account. At times, banks may face temporary shortage of funds in their accounts during the day. This shortage would be catered for in RTGS through the availability of intraday repos (a form of collateralized lending). Alternatively, the transaction can also be queued in the system until the required liquidity becomes available.

<Some broad features of PRISM:
• Forty (40) commercial banks and DFIs are the initial direct participant members of PRISM. Some other account holders with SBP are the indirect members of the RTGS system.
• The participant banks have the facility of online monitoring of their interbank payments via one settlement account and their fate (like settled, queued, or rejected). They would also be able to change their payment priority (if transaction is queued) giving them more control over their funds.
• SBP departments have the ability to monitor the inter-bank transactions and take immediate action as and when required.
• Intraday Liquidity Facility (ILF) would be offered to banks collateralized against Government Securities so that the payments may be cleared immediately.
• The system also has queue management features and mechanisms for Grid Lock resolution
• The system also holds government securities portfolios and enables securities trade matching for Delivery Vs Payment and intra-day liquidity management
• The IT security component of the system provides PKI infrastructure, transactional and link encryptions for data security.
• “Centralized Multilateral Netting” of retail clearing was a mandatory pre-launch requirement for smooth functioning of the PRISM System. Previously the country-wide retail clearing operations were settled in the sixteen field offices of SBP across the country. Now with the help of NIFT (an institution responsible for the clearing operations of retail cheques), SBP has started country-wide multilateral netting and centralized settlement of cheques’ clearing.


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