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What is MICR and how a bank identifies fake demand drafts (DD)?

Sep 29, 2015 19:00 IST

    Sometimes we read in news paper about how a bank identified fake demand drafts (DD), and alerted the police. In this case the bar codes in the fake DDs lacked magnetic ink and were not readable on the ‘Magnetic Ink Character Recognition'(MICR) and this along with other vital clues helped stop the fraud. So, in a way the MICR codes save the bank. However, this is not the only use of MICR. There are many more uses.  Here, the banking team of Jagran Josh is providing the details about MICR. What does it comprise of and how is it useful to customer?

    Many of you would have seen the magnetic inks bar codes printed on the bottom of your bank's cheque leaves. These bar codes are known as MICR code, an abbreviation for 'Magnetic Ink Character Recognition'. Actually, the MICR is the name given to the technology used in printing the code.

    In the early 1980s the Reserve Bank of India introduced many new modes for safe and effective payments across the country. One such important mode introduced was the unique system of MICR based cheque clearing system. Apart from being a security bar code to protect your transaction, the MICR code is also an indispensable part for online money transfers. Every bank branch is given a unique MICR code and this helps the RBI to identify the bank branch and speed up the clearing process.

    What does it comprise?

    The MICR code has digits in it with each three digits signifying some important information about the transaction and the bank.

    • The first three digits in the MICR code represent the city code that is the city in which the bank branch is located. In most cases it is in line with the PIN code of the postal addresses in India.
    • The next three digits stand for the bank code while the last three digits represent the bank branch code.

    One can check the MICR codes of different banks and its branches by checking it out on the RBI website.

    How does MICR help speed up the processing of cheques?

    Unlike the manual clearing of cheques where there is a possibility of many human errors and subsequent delay in clearing, the MICR code on the cheque printed with a unique magnetic ink usually iron oxide has magnetic material present in it and thus makes it machine-readable and almost error proof. Under this method the reading machine or a cheque sorting machine reads through a cheque when inserted and identifies the branch the cheque belongs to and activates the automation clearing process. The MICR code is so clear and fine that the machine could read it even if the MICR code isn't visible due to other marks or stamps on it.

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