Ever wondered what is the significance of the IFSC code that you specify before every direct account transfer?
In the Indian banking system, IFSC (Indian Financial System Code) is an alphanumeric code unique to every bank for identifying the bank and its corresponding branch for a particular account during direct transfers like NEFT, RTGS an IMPS.
This code is mostly printed on the initial information page of the chequebook and also appears on each cheque leaf mostly on the top.
NEFT and IFSC code
NEFT is a nationwide financial transfer system that allows both individuals and body corporates to transfer funds without the need to exchange physical instruments like cheques or demand drafts etc. Through NEFT, funds, as per the instructions of one account holder, can be transferred from his bank account in the country to the bank account of another held with any other bank within the country. Here the transactions do not take place in real time. The bank receives all the instructions regarding transfers and settles them in batches. Hence, NEFTs are also known as e-cheques.
With the number of banks prevalent in the Indian banking network, the IFSC code plays a vital role in securing and tracking these electronic transactions. It ensures that the funds reach the intended bank account from the correct bank account.
RTGS and IFSC code
RTGS or Real Time Gross Settlement as the name suggests is an order to order based electronic transfer. Here the transactions are executed as and when the particular instructions arrive from the respective account holder. In this case, there is no batch settlement or netting required. The transactions are executed as soon as they are approved.
In this case, the IFSC code is needed to identify the correct bank and branch to which the funds need to be transferred.
IMPS and IFSC Code
IMPS also known as Immediate Payment Service was introduced in 2010. The system offers 24X7 interbank transfer facilities around the country. This means that money can be transferred from one bank account to another, within the country using the internet, through mobile apps and ATMs. IMPS have proven to be the most economical mode of transferring funds till date.
Not only is it functional but also a secure system as it implements every transaction using the IFSC code, making tracking simple and the execution accurate.
This simple code has paved the way for a dynamic new transaction system that has not only facilitated businesses to overcome the regular day-to-day hassle of payment and receipts, but it has also allowed individuals the luxury to execute transactions without having to approach their bank.