Wednesday, June 9, 2010

Basics of MICR,IFSC,NEFT & RTGS systems


The Indian Financial System Code is a code for identifying the bank and branch which an account is held. The IFSC code is used both by the RTGS and NEFTfinance transfer systems
IFSC stands for Indian Financial System Code . In the Structured Financial Messaging System (SFMS), the Indian Financial System Code (IFSC) is being used as the addressing code in user-to-user message transmission. The Payment System Applications such as RTGS, CFMS and NEFT developed by the Reserve Bank of India use these codes.

The code consists of 11 Characters - First 4 charactersrepresent the entity; Fifth position has been defaulted with a '0' (Zero) for future use; and the Last 6 characterdenotes the branch identity. IFSC is being identified by the RBI as the code to be used for various payment system projects within the country, and it would, in due course, cover all networked branches in the country. In due course, when all bank branches participate in electronic payment systems, they would need to have a single identifiable unique code and IFSC would serve the purpose effectively.


Magnetic Ink Character Recognition or MICR, is a character recognition technology used primarily by the banking industry to facilitate the processing of cheques. The technology allows computers to read information (such as account numbers) off of printed documents. Unlike barcodes or similar technologies, however, MICR codes can be easily read by humans.
MICR characters are printed in special typefaces with a magnetic ink or toner, usually containing iron oxide. As a machine decodes the MICR text, it first magnetizes the characters in the plane of the paper. Then the characters are passed over a MICR read head, a device similar to the playback head of a tape recorder. As each character passes over the head it produces a uniquewaveform that can be easily identified by the system.
The use of magnetic printing allows the characters to be read reliably even if they have been overprinted or obscured by other marks, such as cancellation stamps. The error rate for the magnetic scanning of a typical check is smaller than with optical character recognitionsystems. For well printed MICR documents, the "can't read" rate is usually less than 1% while the substitution rate (misread rate) is in the order of 1 per 100,000 characters.

MICR is standardized by ISO 1004:1995.

MICR code number consisting of nine digits followed by a delimiter. The first three digits represent the city, the next three indicate the bank and the last three digits signify the branch. The nine digit sort code is unique for any bank branch in the country. This MICR code is used in RBI clearing process to identify the branch and bank for clearing processes.

.Real Time Gross Settlement(RTGS):

Ø RTGS System:

The acronym “RTGS” stands for Real Time Gross Settlement. RTGS system is a
funds transfer mechanism where transfer of money takes place from one bank to
another on a “real time” and on “gross” basis. This is the fastest possible money
transfer system through the banking channel. Settlement in “real time” means
payment transaction is not subjected to any waiting period. The transactions are
settled as soon as they are processed. “Gross settlement” means the transaction is
settled on one to one basis without bunching with any other transaction. Considering
that money transfer takes place in the books of the Reserve Bank of India, the
payment is taken as final and irrevocable.
Under normal circumstances the beneficiary branches are expected to receive the
funds in real time as soon as funds are transferred by the remitting bank. The
beneficiary bank has to credit the beneficiary's account within two hours of receiving
the funds transfer message.
The remitting bank receives a message from the Reserve Bank that money has been
credited to the receiving bank. Based on this the remitting bank can advise the
remitting customer that money has been delivered to the receiving bank.
If the money cannot be credited for any reason, the receiving bank would
have to return the money to the remitting bank within 2 hours. Once the money is
received back by the remitting bank, the original debit entry in the customer's
account is reversed.
all the bank branches in India are not RTGS enabled. As on January 31, 2007
more than 26,000 bank branches are RTGS enabled.
Ø Difference between RTGS and Electronic Fund Transfer System (EFT) or National
Electronics Funds Transfer System (NEFT):

EFT and NEFT are electronic fund transfer modes that operate on a deferred net
settlement (DNS) basis which settles transactions in batches. In DNS, the settlement
takes place at a particular point of time. All transactions are held up till that time.
For example, NEFT settlement takes place 6 times a day during the week days (9.30 am,
10.30 am, 12.00 noon. 1.00 pm, 3.00 pm and 4.00 pm) and 3 times during Saturdays
(9.30 am, 10.30 am and 12.00 noon). Any transaction initiated after a designated
settlement time would have to wait till the next designated settlement time. Contrary
to this, in RTGS, transactions are processed continuously throughout the RTGS
business hours.
The RTGS service window for customer's transactions is available from 9.00 hours
to 15.00 hours on week days and from 9.00 hours to 12.00 noon on Saturdays i.e. to
accept the customer transactions for settlement at the RBI during 9.00 hours to
15.00 hours on week days and between 9.00 hours and 12.00 noon on Saturday.

Ø Essential requirements to be furnished:

The remitting customer has to furnish the following information to a bank for effecting
a RTGS remittance:

1. Amount to be remitted
2. His account number which is to be debited
3. Name of the beneficiary bank
4. Name of the beneficiary customer
5. Account number of the beneficiary customer
6. Sender to receiver information, if any
7. The IFSC code of the receiving branch

Ø minimum / maximum amount stipulation for RTGS transactions :

The RTGS system is primarily for large value transactions. The minimum amount to
be remitted through RTGS is Rs.1 lakh. There is no upper ceiling for RTGS
transactions. No minimum or maximum stipulation has been fixed for EFT and NEFT
On a typical day, RTGS handles about 14000 transactions a day for an approximate
value of Rs.1,50,000 crore.

Ø Processing Charges:

While RBI has waived its processing charges for all electronic payment products till
March 31, 2008, levy of service charges by banks is left to the discretion of the
respective banks. The bank-wise details of charges levied are available on the RBI
website –


National Electronic Funds Transfer (NEFT) is a nation-wide system that facilitates individuals to electronically transfer funds from any bank branch to any other bank branch in the country.

For being part of the NEFT funds transfer network a bank branch has to be NEFT-enabled. As at end-November 2009 as many as 62,000 branches / offices of 94 banks in the country (out of around 75,000 bank branches) are NEFT-enabled. Steps are being taken to further widen the coverage both in terms of banks and branches.
The list of bank branches participating in the NEFT system is available on the website of Reserve Bank of India.
Individuals, firms or corporates maintaining accounts with a bank branch can transfer funds using NEFT. Even such individuals, firms or corporates who do not have a bank account (walk in customers) can also deposit cash at the branch with instructions to transfer funds using NEFT. A separate Transaction Code (No. 50) has been allotted in the NEFT system to facilitate walk-in customers to deposit cash and transfer funds to a beneficiary. Such customers have to furnish full details including complete address, telephone number etc.NEFT, thus, facilitates originators or remitters to initiate funds transfer transactions even without the need for having a bank account.
Presently, NEFT operates in batches from 9 a.m to 5 p.m. There are six settlements at 9 a.m, 11 a.m, 12 noon, 1 p.m, 3 p.m and 5 p.m on week days and three settlements at 9 a.m, 11 a.m and 12 noon on Saturdays.

Ø Working Of NEFT System:

Step-1 : An individual / firm / corporate intending to originate or transfer funds through NEFT has to fill an application form giving details of the beneficiary (like, name of the beneficiary, name of the bank branch where the beneficiary has an account, IFSC of the beneficiary bank branch, account type and account number). The application form will be available at the originating bank branch. The originator authorises the branch to debit his account and remit the specified amount to the beneficiary. Customers enjoying net banking facility offered by their bankers can initiate the funds transfer request online. Some banks offer the NEFT facility even through the ATMs. Walk-in customers will, however, have to give their contact details (complete address and telephone no. etc.,) to the branch. This will help the branch to refund the money to the customer in case credit could not be afforded to the beneficiary’s bank account or the transaction is rejected / returned for any reason.
Step-2 : The originating bank branch prepares a message and sends the message to its pooling centre (also called the NEFT Service Centre).Step-3 : The pooling centre forwards the message to the NEFT Clearing Centre (operated by National Clearing Cell, Reserve Bank of India, Mumbai) to be included for the next available batch.Step-4 : The Clearing Centre sorts the funds transfer transactions destination bank-wise and prepares accounting entries to receive funds from (debit) the originating banks and give the funds to (credit) the destination banks. Thereafter, bank-wise remittance messages are forwarded to the destination banks through their pooling centre (NEFT Service Centre).Step-5 : The destination banks receive the remittance messages received from the Clearing Centre and pass on the credit to the beneficiary accounts.

Ø Processing charges:

Reserve Bank of India has waived the processing or service charges for member banks till March 31, 2010. Accordingly, member banks participating in NEFT need not pay any processing or service charges to Reserve Bank of India. Further, processing or service charges to be levied by the member banks from their customers have also been rationalised by Reserve Bank of India as under: –
a) Inward transactions at destination bank branches (for credit to beneficiary accounts)

– Free, no charges to be levied from beneficiaries

b) Outward transactions at originating bank branches (charges for the remitter)
 For transactions up to Rs. 1 lakh  Charges not exceeding Rs. 5. For transactions of Rs. 1 lakh and above – Charges not exceeding Rs. 25.

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