Thursday, 3 December 2015

Routing codes in Indian Banking System

Dear MM readers- The payment system environment in India has evolved, from a paper based system to a system where multiple electronic systems co exist. Banks and customers use  the multiple routing codes that exist in the system.
These include (1) MICR (2) IFSC (3) SWIFT (4) BSR
Magnetic Ink Character Recognition (MICR) code
MICR technology – based mechanized clearing systems was introduced in 1986. It uses MICR code parameter on chuques as the basis for clearing. It requires allotting of MICR code to every bank branch, Which is encoded on every chuques issued by a branch participating in MICR clearing which handles a large number of chuques.
The MICR code sttucture is as under
000                          000                           000
City code                  Bank code                 Branch code

Indian financial system code (IFSC)
The IFSC is an 11-digit alpha-numeric code based on the pattern followed by the society for worldwide Inter Banking Financial Telecommunication (SWIFT).

The IFSC format is as under:
RBIS                                      0                    AHPA01
(bank identifier )                    Zero*           (Branch  identifier)
*(retained zero for future use)
The first four digits identify the banks,5th is numeric (kept 0) and last characters identify the bank branch. The codes conform to the SWIFT BIC code. RIGS and NEFT work on the basis of IFSC.

SWIFT Branch Identifier Code
Bank SWIFT Code is a standard format of Bank Identifier Code (BIC) and is unique for each bank.these codes are used when transferring money and messages between banks.
The SWIFT code consist of 8 or11 characters. When 8 digit code given, it refers to the primary office.
  • First 4 characters –bank code (only letter)
  • Next 2 characters- ISO 3166-1 alpha -2 country code (only letter)
  • Next 2 characters- location code (letter and digits)(passive participant will have “1” in second chatacter)
  • Last 3 character – branch code optional (‘XXX’ for primary office )( letter and digits)
SWIFT is not operating in India for domestic transactions due to which BIC is not used for routing of transaction domestically.

International Bank account Number (IBAN)
  • IBAN is an international standard for identifying bank accounts across national borders. It facilitates domestic /cross –border inter-bank electronic payment and straight through processing.
  • IBAN mainly consists of 2 parts. The first part consist country code (2 character ) check digit (2 numeric)
  • Bank ID (4 characters)and 2nd part consist of basic bank account number (BBAN) decided by banks (up to 26 characters) i.e. maximum 34 digits.
  • Switch over IBAN is essential for India. Out of 4 options of IBAN (longest, shortest, UIDAI based and pattern based), the committee found that longest IBAN is most suitable for India.
  • It envisages 26 digit IBAN for the banks in India with 18 digit account number, 4 digit bank code, 2 digit country code and 2 check digits. Under this, banks can continue to use the existing account number, and where necessary the number will be padded with zeros to make the length of 18 digits as required.
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