Financial Market Infrastructures (FMIs) play a critical role in the financial system and the broader economy of a nation. While safe and efficient FMIs contribute towards maintaining and promoting financial stability and economic growth, FMIs also concentrate risk.

In 2012, the Committee on Payment & Settlement System (CPSS) under Bank for International Settlement (BIS) and the Technical Committee of IOSCO came up with Principles of Financial Market Infrastructures (PFMIs) which included 24 principles and 5 responsibilities for central banks and concerned regulators. The principles of PFMI are designed to make sure the essential infrastructure supporting the global financial markets is even more robust and are better equipped to withstand financial shocks.

Nepal Rastra Bank (NRB) Act 2002 Article 4Ci mandated Nepal Rastra Bank ‘to develop a secure, healthy and efficient system of payment’. Thus, NRB formulated a National Payment Systems Development Strategy (NPS) – 2014 by considering Principles of Financial Market Infrastructures (PFMI).

What is RTGS?

The Real-Time Gross Settlement (RTGS) System is the heart of Payment Systems. It is one of the most commonly used forms of MFIs by central banks.

RTGS is a specialist funds transfer system where the transfer of money or securities takes place from one bank to another on a ‘real-time’ and a ‘gross’ basis. Settlement in ‘real-time’ means payment is not subjected to any waiting period, with the transactions being settled as soon as they are processed. In RTGS all transactions are settled on a one-to-one basis without bundling or netting with any other transaction. Here the term ‘Settlement’ denotes that once processed, payments are final and irrevocable.

RTGS systems are typically used for high-value and urgent transactions that require immediate clearing. However, most regular payments would not use an RTGS system but instead would use a national payment system or automated clearing house that allows participants to batch and settle them in a deferred net settlement system.

RTGS in Nepal

A 2014 study by UKaid Sakchyam Access to Finance on the payment system of Nepal demonstrated a requirement for the modernization of the payment system. The findings aligned with NRB’s National Payment Strategy 2014.

Sakchyam has been supporting NRB in modernisation and strengthening of Payment System since 2014. In March 2018, NRB assigned UKaid Sakchyam to deploy and implement the RTGS System at NRB with a timeline of 18 months.

The RTGS system has been operational since September 2019 with all 27 class ‘A’ banks as the Direct Participants of the RTGS system and Nepal Clearing House as a technical member.

NRB had planned to onboard class ‘B’ and class ‘C’ financial institutions into RTGS System, however, due to the COVID-19 pandemic, this has been delayed.