A Breakdown of IFSC, MICR, and RTGS, and their Importance

Have you ever tried to transfer funds online through net banking? If yes, then you must have been asked to enter IFSC of the beneficiary bank. When writing a cheque, you must have seen a few numbers printed at the bottom part of the cheque, a part of these numbers are the MICR code. When transferring funds from a bank to another, you must have come across a term or system called as RTGS. So, what are IFSC, MICR Code, and RTGS?

Here we explain all the 3 above in detail.

  1. Indian Financial System Code (IFSC)

IFSC is an acronym of Indian Financial System code. It is used for online fund transfers. This is a code that identifies the bank and branch, where the beneficiary holds an account. IFS code is used for RTGS, CFMS, NEFT, and other internet fund transfer procedures. In the SFMS (Structured Financial Messaging System), IFSC is utilized as an addressing code and important for user-to-user message transmission.

  • An IFSC code consists of 11 characters in total.
  • The first 4 characters depict the entity.
  • The 5th character is a ‘0’ (zero) that is kept for future use.
  • The remaining 6 characters represent the bank branch. Using this code helps for swift and error-free electronic payments.

You can find IFS codes on the official website of the Reserve Bank of India (RBI) and that of the bank. For instance, you want to search for Bank of Baroda IFSC then simply visit the bank’s website and search for relevant section that will provide you bank-branches IFSC codes. Or, you can search for the same on the RBI’s website.

  1. Magnetic Ink Character Recognition (MICR)

MICR is the acronym of Magentic Ink Character Recognition. It is a technology used by the banking sector to process the cheques correctly by reading the characters that identify bank branch, account number, etc correctly. The magnetic printing of codes allow the characters to be read swiftly even if these are obscured or overprinted by cancellation stamps or other marks. This is why, the error ratio for magnetic scanning of cheques are lower than that for optical character recognition

  • MICR code number consists of 9 digits. These are followed by a delimiter. The starting 3 digits represent the city.
  • The following 3 digits represent the bank.
  • The last 3 digits depict the branch. Every bank branch has a unique 9-digit MICR code for itself.
  • This code accurately identified the branch and the bank, and is utilized by the RBI for cheque clearing process.

MICR characters appear in special typefaces with magnetic toner or ink. They contain iron oxide. The machine which decodes the MICR text magnetizes the characters and then passes over a MICR read head. This device is similar to a playback head of a tape recorder. The system can identify the characters as they pass over the head in a unique waveform.

  1. Real Time Gross Settlement (RTGS)

RTGS is an acronym for Real Time Gross Settlement. It is a system for fund transfers. The transfer has to take place from a bank to another in real time. RTGS is the fastest possible money transfer option via a banking channel. The real time settlement allows the transaction to happen instantly and involved no waiting period. This is why, the payment if irrevocable and final.

  • The beneficiary bank receives the funds as soon as the same is transferred from the remitting bank.
  • This amount has to be credited to the beneficiary’s account by the beneficiary bank, within 2 hours of getting the message for fund transfer.
  • The remitting bank, on the other hand, receives a message from the RBI that the transaction has been successful.

In case the money is not credited for a reason, the beneficiary bank has to return the amount to the remitting bank in 2 hours. The original debit entry of the customer’s account is then reversed. Not all banks in India are RTGS enabled. Thus, you need to check with your bank if RTGS facility is available for you or not.

Final Words

The above-given is a detailed explanation of IFSC (used for electronic payments to identity bank branch), MICR code (used to identity bank and branch for cheque clearing process), and RTGS (real time fund transfer from a bank to another). While RTGS is a method of fund transfer, IFSC and MICR code are codes for fund transactions, online and offline (through cheques), respectively.