NRB & Sakchyam Organize a Joint Workshop to Expedite the RTGS Project

February 8, 2019

7 February, 2019: Nepal Rastra Bank (NRB) and UKaid Sakchyam Access to Finance Programme (Sakchyam) organized a half day workshop today to expedite the Real Time Gross Settlement (RTGS) Project. The workshop was divided into two sessions where CEOs of commercial banks along with senior representatives from NRB and Nepal Clearing House Ltd. (NCHL) participated in the first session and IT and Operations team of all commercial banks participated in the second session. Honorable Governor of NRB Dr. Chiranjibi Nepal along with Executive Director, Payment Systems Department of NRB Mr. Dev Kumar Dhakal, Deputy Head of Office of DFID Nepal Mr. Nathanael Bevan, President of Nepal Bankers’ Association Mr. Gyanendra Dhungana, Programme Director/Strategic Initiatives Advisor of Sakchyam/Louis Berger Mr. Baljit Vohra and Team Leader of Sakchyam Mr. Nimal Dahal were all present during the workshop. Dr. Gordon Clarke, Business Payment Systems Expert, Sakchyam along with Mr. Alexander Morozov, Project Manager from CMA Small Systems AB, Sweden both gave a brief presentation on the Status and Next Steps of the RTGS Project in Nepal.

Speaking at the program, Honorable Governor of NRB Dr. Chiranjibi Nepal said, “RTGS project is a high priority project for NRB and we need cooperation from the entire banking industry to complete it and successfully launch the services within the timeline. So, I urge all the CEOs and senior representatives of commercial banks present here to expedite the process from your end so that we can have a full functioning RTGS system in the country by September 2019.”

Similarly, Nathanael Bevan, Deputy Head of Office of DFID Nepal said, “DFID does a lot of work in Nepal and we do a lot of complicated, difficult kind of work, but these types of interventions, getting payment systems right in financial services is absolutely critical to the work that we do.”

NRB assigned Sakchyam to implement the RTGS in mid-March 2018 with 18 months’ timeline.  The project kicked off from October 2018 with a Gap Analysis Study. As part of Gap Analysis Study, a workshop with entire banking industry had taken place on 15 November 2018 followed by week-long sessions with NRB, NCHL, Ministry of Finance (MOF) and Financial Comptroller General Office (FCGO). Necessary hardware procurement and installation was also completed in December 2018 by the selected vendor CMA Small Systems, Sweden. The base RTGS System was also installed at the same time. The CMA team is working on the necessary customization/development and expected to complete it by end March 2019.

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What is the RTGS system?

A Real Time Gross Settlement System (RTGS) is a funds transfer system in which the transfer of funds between one bank and another takes place in “real time” and on a “gross” – transaction by transaction – basis, without bundling or netting with any other transaction.

Real time settlement means that a payment transaction is not subjected to any waiting period. If funds are sufficient, transactions are processed and settled as soon as they are entered into the RTGS. Once processed, payments are final and irrevocable. RTGS transactions may be customer to customer or bank to bank but are always sent by one bank (the paying bank) and received by another (the collecting bank).

What are the main purposes of the RTGS?

RTGS systems are typically used for high-value and/or urgent transactions that require and receive immediate clearing. In some countries the RTGS systems may be the only way to get same day cleared funds and so may be used when even small payments need to be settled urgently.

Most regular payments, i.e., low-value or non-urgent payments would not be accomplished through RTGS, but instead would use a national payment system such as Automated Clearing House (ACH) that allows participants to batch and net payments. RTGS payments typically incur higher transaction costs and usually operated by a country’s central bank.

What are the benefits of the RTGS?

The biggest benefit is that RTGS eliminates systemic settlement risk that can arise for end-of-day net settlement of large value transactions. In a net end-of-day system, if one bank fails to pay, then others can also fail, and a country’s banking system can crash. RTGS prevent this by settling transactions in Central Bank accounts (the RTGS settlement accounts) before the payment is passed to the collecting bank.

From the transaction point of view, RTGS is immediate and secure. RTGS is mainly used for high-value transactions, since RTGS payments are processed individually when entered. And since RTGS funds are transferred immediately upon processing, the funds are immediately available for further payments.

Why is the system changing now?

Nepal has had a modern ACH for cheques and low value bulk payments for some years. However, the problem of systemic settlement risk had not been addressed. Now that the economy is expanding, and many new payment services are emerging, it is time to address this risk.