The industrialisation of the Indian economy led business transactions beyond the confines of one particular area or banking network. The financial sector saw a surge in the volume of bank dealings from all businesses, big or small, and therefore there was a need to streamline and fortify the process of verification of the financial instruments for the smooth functioning of the economy.
What is the MICR code?
In the 1980s, the Reserve Bank of India introduced different systems in place to regulate banking transactions. The MICR coding system was one of the most important of such inclusions and the system is even prevalent today.
MICR or ‘Magnetic Ink Character Recognition Technology’ is a character identification mechanism used for the purpose of systematic processing of the cheque during the payment cycle. Generally, this code is printed at the bottom of every cheque leaf with a magnetic ink or tone in distinct typefaces. The ink contains iron oxide and can be read and verified by humans and also by specialized machines which leave little room for error.
Being a simple nine-digit number each set of digits help to identify the bank and its branch. The first three digits signify the city where the branch belongs to and therefore it may sometimes be similar to the pin code of the area. The next three digits represent the bank and the last three digits are the actual code that identifies the branch.
The Importance of the MICR code
The main purpose of the code is to provide security to your cheque transactions.
Today, the MICR code has become a crucial part of online money transfers. It helps to identify the bank and the corresponding branch which lets the RBI process the transactions without delay.
Due to the introduction of the code, the possibility of human error has been negated to the smallest denominator. Also, the use of machines to read the code makes the process faster and keeps no room for error. With the help of the code the machine can read and identity as to which bank and branch do the cheque belong to, which saves time and improves the transaction cycle.
Moreover, even when the code is not visible to the human eye for reasons due to stamping or other markings on the cheque, the machine has no difficulty in identifying the code.
MICR code is mandatory for all banks and it must be printed on the chequebook and cheque leaves along with the IFSC code.