(Updated as on January 31, 2014)

RESERVE BANK OF INDIA
DEPARTMENT OF INFORMATION TECHNOLOGY
CENTRAL OFFICE
MUMBAI - 400 001

FOREWORD

Cheque Clearing represents an important milestone in the development of an efficient payment and settlement system. The introduction of new technologies in recent years has helped to foster such a system all over the world. As a part of such an evolving framework, the entire process of manual processing of cheques underwent a sea-change when mechanised processing of cheques using Magnetic Ink Character Recognition (MICR) technology was for the first time introduced in India in the late eighties at the four major metropolitan cities of Mumbai, Chennai, Delhi and Calcutta. These centres were set up and are managed by the Reserve Bank of India. The success of these MICR based local clearing processing centres has spurred initiatives on the part of commercial banks for setting up of many more MICR based Cheque Processing Centres at commercially important centres of the country with the latest State-of-the-Art technology. Some centres have also got the facility for ‘Imaging’ which enables capturing of the digital images of the cheques.

2. Consistent with its philosophy for standardisation of work procedures across different sites, the Department of Information Technology of the Reserve Bank of India has come out with a booklet furnishing comprehensive procedural guidelines to be followed by the banks and at the Cheque Processing Centres, for operating the Mechanised cheque processing systems using MICR technology. Copies of this booklet, which is published by the undersigned, are available with the Director, (Administration), Division of Reports, Reviews and Publications (Sales Section), Department of Economic Analysis & Policy, Reserve Bank of India, Amar Building (Ground Floor), Sir P.M.Road, Mumbai-400 001 at a Price of Rs.50/- (Rupees fifty only). The Cheques/Drafts should be drawn in favour of ‘ Reserve Bank of India ’, and payable at Mumbai. The booklet has been published with a view to essentially offering to provide useful and practical information for the benefit of the commercial banks. An abridged version of this booklet has now been posted on the RBI Website, as requested by some of the users, who are required to print MICR instruments for issuing to the general public.

CHAPTER I
INTRODUCTION

1.1 One of the important means of efficient funds movement through the organised sector of an economy is the process of clearing of cheques. To facilitate quick processing of cheques and prompt settlement thereof, mechanised cheque processing systems using Magnetic Ink Character Recognition (MICR) technology for cheque clearing was introduced in the mid eighties and has been in operation at the four major metropolitan cities viz., Mumbai, Calcutta, Chennai and New Delhi. Subsequently, 26 centres with substantial cheque volumes were identified and allotted to different public sector banks for managing the Cheque Processing Centres as indicated in Annexure I. Some of these centres have already commenced full scale operations, while others are at various stages of implementation.

1.2 This abridged version of the booklet lays down the procedural guidelines for mechanised cheque processing based on MICR technology to be used by banks managing the MICR Cheque Processing Centres and their participant members.

1.3 These guidelines deal mainly with the operations of the MICR based cheque processing and have to be read with and subject to the Uniform Regulations and Rules for Bankers’ Clearing Houses.

1.4 The term ‘cheque’ in this booklet shall mean and include all types of clearing instruments including cheques, drafts, pay orders, ‘at par’ instruments, etc.

CHAPTER II
MECHANISED CHEQUE PROCESSING SYSTEM -GENERAL GUIDELINES

Standardisation of Cheque Forms

2.1 To facilitate MICR based Cheque Processing, instruments passing through clearing are required to be issued in standard format and defined size of 8” x 3 2/3”. The instruments should be printed on MICR grade quality paper (the specifications of which are given in Annexure II) with a “read band” of 5/8” in width reserved at the bottom on which essential particulars occur in special MICR ink in the E-13B Font. Cheques are printed by approved security printers forming part of a panel which is maintained by the Indian Banks’ Association. The current panels of printers and paper manufacturers are furnished in Annexure III and IV respectively.

MICR Code Line Structure

2.2 The code line occurring in the Read Band is divided into five fields with distinct delimiters separating each field, the details of which are as under:

Issue of MICR Cheque Books

2.3 Each member bank should ensure that the cheque books issued by its branches to account holders are in the MICR format. Before bulk printing the cheque books for the first time, adequate number of specimen cheque leaves could be forwarded to the nearest MICR Cheque Processing Centre (addresses of the centres have been furnished in Annexure VIII) for being tested with reference to the quality of MICR paper / printing, on the reader/sorter.

2.4 Corporate customers or other account holders like Central or State Government Departments, who print their cheques which are drawn on the branches of member banks should be individually advised to print the cheque leaves in the MICR format with pre-printed MICR code line. Specimen cheque forms / ‘at par’ items etc. could, if desired, be tested at the nearest MICR processing centre before bulk orders are executed. This applies to Continuous Stationery cheques as well. In case of non-testing and consequent high reject rates on pre-printed field, penalties may be levied on the drawee bank.

Non-Standard Instruments to be Standardised

2.5 Constituents of banks including Central and State Government offices who issue instruments like income tax/sales tax refund orders, Government Pay Orders, etc. should be advised, by the banks on which such instruments are drawn, to make arrangements to issue the instruments in the standard MICR format to facilitate processing them on Reader/Sorters. Non-standard instruments may not form part of the cheque clearing.

MICR CHEQUE PROCESSING EQUIPMENTS

2.6 The following are the MICR cheque processing equipments:

(i) MICR Document Encoder

The encoder is a table top machine which can print the coded particulars of cheques and other payment instruments in magnetic ink on the 5/8” read band at specified position. The conventional encoder has a keyboard and a programmable journal printer (i.e. lister). It endorses on the reverse of the instrument a fixed or variable stamp. The encoder has the facility to proof the pay-in-slip amount or control totals simultaneously by marking off successive amounts of encoded cheques thus arriving at a zero balance when all the cheques are encoded and bringing out discrepancies, if any, in the totals or errors during encoding. The figures are cumulated to enable encoding of the control documents viz., Batch and Block tickets. The encoders are also programmed to simultaneously affix/print the Clearing Endorsement Stamp on the reverse of the instrument, in the format prescribed. Encoders with compatibility to PCs are available, as also are power encoding machines and encoders with limited sorting facilities. Encoding work could either be decentralised at branches or centralised at the Service branch depending on the logistic in the bank. Clustering of encoding work at some branches to take care of smaller branches in the vicinity is another option available. Detailed guidelines on the availability of different types of MICR encoders and steps to be taken by member banks in setting up the MICR cheque encoding facilities in their Service Branch/Main Clearing Department are given in Annexure IX.

(ii) Reader Sorter

A Reader/Sorter is a device that reads the MICR encoded documents and sorts (direct) them to one of the many pockets as per the pre-determined sort pattern/programme. Most reader/sorters can operate on off-line mode as well as on-line with a host computer. Documents are fed automatically from an input hopper, which can handle documents of various sizes simultaneously. The documents travel past an electronic field which magnetises the characters and symbols in the MICR read band and generates distinct wave patterns intelligible to the machine. The physical sorting of cheques on the machine is carried out under the control of a computer program. This sort program, while directing the documents to the designated pockets, simultaneously captures and stores the information in the MICR code line on the cheques. The information captured from the documents is simultaneously stored on disk/tape, etc. and used for further processing. In case certain information is not read due to defective printing, encoding, etc., the cheque is directed to a ‘Reject’ pocket along with the control documents. These are taken out and the missing information is completed by manually keying in the data.

(iii) Image Capture

Image capture and image processing technology is a recent development in document processing by which the image of a payment instrument is captured simultaneously when it is processed on reader/sorters by adding an image capture module and related software. The images so captured are stored on magnetic media for retrieval and processing. The images can be displayed on a screen and copies can be printed. It is also possible to transfer the image data to banks through magnetic media or through the communication backbone. The availability of image files enhances the processing quality and speeds up reject recapture, balancing, etc. The stored images could also be retrieved at a later date to facilitate quick reconciliation of clearing differences.

ENDORSEMENTS ON CHEQUES

Special Crossing Stamp

2.7 All cheques received for collection over the bank’s counters are required to be branded with the bank’s special crossing stamp. The suggested dimension and the position of the Special Crossing Stamp are given in Annexure X.

Other Endorsements

2.8 Apart from the endorsements which are already made on the cheque when the customer has deposited the cheque for realisation, there are two categories of endorsements/stamping which are made by the collecting bank during the cheque processing – the Clearing stamp and the bank’s certification or confirmation of various endorsements on the cheque and an undertaking to the effect that the proceeds will be credited to the payee’s account on realisation.

Clearing Stamp

2.9 The clearing stamp indicates particulars regarding the name of the presenting bank/branch (alpha codes), date of presentation and the type of clearing. Encoding machines are programmed to affix the clearing stamp on the reverse of the cheque simultaneously while encoding the amount. Format of the clearing stamp (local clearing) is given in Annexure XI.

Confirmation of Endorsements

2.10 As regards the confirmation/certification of endorsements, the attention of member banks is invited to the Uniform Regulations and Rules of the Clearing Houses providing that once the clearing stamp is affixed, it could be presumed that the collecting bank confirms the previous endorsements and undertakes to credit the party’s account on realisation and no specific endorsement/certificate of confirmation to this effect on the instrument.

3. Detailed Clearing Procedure to be followed by banks and the MICR Cheque Processing Centres.

3.1 Detailed procedures for Handling Clearing Cheques and Inward Clearing by banks / their branches and for carrying out the operations at the MICR Cheque Processing Centre, have been narrated in the booklet referred to in the “Forward” of this abridged version.

ANNEXURE I

Names of Cities and Banks Setting up MICR Centres

ANNEXURE II

Technical Specifications for Printing of Standard
Cheque Forms and Forms of other Payment Instruments

Part I -Specifications for cheque paper

A. General

1. Paper to be supplied should be flat and without curl.

2. To be free from dust/fluff/pinholes/specks and metallic inclusions.

3. To be printed on the smoother (felt) side.

4. To be smooth and free from embossment or heavy engraving.

5. Moisture content : 4 - 6%

6. The paper supplied by the paper manufactures should be exactly “square” cut so that no further trimming is required to be done by the printers to make it square.

7. Continuous light band watermark to be incorporated in the security paper in such a fashion that it shall not appear in the 5/8” clear band on each cheque.

B. Sensitized security cheque paper

Other properties including security features will be normal for this grade of paper.

C. Supply of paper

It would be the responsibility of the banks to supply paper to printers.A panel of approved paper manufacturers from whom the supply could be obtained is furnished in Annexure IV.

Part II -Printing Specifications

1. Size

The instruments should be in uniform size of 8” x 3 2/3”.

2. Counterfoils for cheques.

Banks have decided that the cheque forms will be issued to customers without counterfoils. To enable the customers to maintain a record of the cheques issued by them either blank slips of ordinary paper with printed columns may be provided along with the cheques for recording the particulars or provision be made on inside covers. Banks should ensure that the slips provided have sufficient space for the customer to record the particulars of cheques issued as well as deposits made and the balance in the account.

3. Cheque Design

Each bank may have its own design, background printing, logo, etc.

4. Cheque format

In order to bring uniformity in the cheques and draft forms, their formats have been standardized.

5. Cheques to be issued in loose leaf form/book form.

Whether the cheques/drafts should be printed in loose leaf form (shrink packed) or in book form, will be advised by banks to printers. If they are to be printed in book form, banks may advise the printers the binding margin to be kept along side perforation. The perforation should be deep to enable the customer to tear off the cheque leaf without difficulty.

6. Colour of ink for printing MICR code line

It is preferable to use black magnetic ink for the MICR code line.

7. Security paper printing & storage

The bank should, by inspection, verify whether the printers have taken adequate steps in this regard.

8. A panel of printers from whom the cheques could be printed may be obtained from Indian Banks’ Association or their website may be referred for the purpose.

ANNXURE III

List of Security Printers included in the panel to undertake printing of cheques for banks

The empanelment of security printers which was being carried out by Reserve Bank of India has been entrusted to Indian Banks’ Association (IBA) since the year 1997. Information on the matter may be obtained from Indian Banks‘ Association or their website may be referred for the purpose

ANNEXURE IV

Panel of approved Paper Manufacturers

The empanelment of paper manufacturers which was being carried out by RBI has been entrusted to Indian Banks’ Association (IBA) since the year 1997. Information on the matter may be obtained from Indian Banks‘ Association or their website may be referred for the purpose

ANNEXURE V

DETAILS OF MICR CITY CODES

ANNEXURE VI

LIST OF ALL INDIA BANK CODE NUMBERS

NOTE: In case the name of any bank is not included in the list, please approach thE Chief General Manager In-Charge, Reserve Bank of India, Department of Information Technology, Central Office, Central Office Building, 14th Floor, Sahid Bhagat Singh Marg, Mumbai-400 001 through the President of the Clearing House.

ANNEXURE VII

Transaction Codes List

A uniform set of transaction codes has been developed to be used by all banks. The transaction code, to be pre-printed, comprises a two digit number running from 01-99. Codes 01- 49 are reserved for debit instruments and codes 50 - 99 for credit instruments. The transaction code numbers and their definitions are enumerated below:

@ To be printed on cheques/payment instruments issued by Govt. Departments for drawing on their accounts maintained with banks other than Reserve Bank of India

Note : For the present, banks have decided not to bring the travellers’cheques under the purview of mechanised cheque processing. Travellers cheques may not be printed in MICR format and with MICR codeline. Accordingly, when the mechanised cheque processing system is introduced for cheque clearing on a regular basis, the travellers’ cheques will not be eligible for presentation through the clearing system.

ANNEXURE VIII

ADRESSES OF THE MICR CHEQUE PROCESSING CENTRES (CPC)

ANNEXURE IX

Detail guidelines regarding MICR Encoders

MICR CHEQUE ENCODER is a table top machine which can print the coded particulars of cheques and other instruments in magnetic ink in the 5/8” read band in the specified position. A conventional encoder of stand alone type has a keyboard, a programmable journal printer and a MICR cassette/ribbon typewriter. The machine can simultaneously with encoding, endorse on the reverse of the instrument, a fixed or variable stamp i.e. clearing stamp of the presenting bank/branch. The encoder can, during encoding, proof the pay-in-slip amount or the control total by marking off successive amounts of encoded cheques thus arriving at a zero balance when all the cheques are encoded, bringing out during the process any discrepancy in the totals or wrong encoding, if any. The encoder should have facility to encode all the five fields or any of the fields desired to be completed by pressing the relevant functional keys and by keying in the digital information i.e. the code number of the field concerned. There should also be a provision to automatically endorse the clearing stamp on the reverse, simultaneously with the encoding. In addition, it should be possible to skip the encoding or endorsement when needed, say when amount field is already encoded and the instrument is being represented. There should be a provision for multiple positioning of endorsement on the reverse to take care of such cases. At the end of encoding each lot of cheques, the encoder should have facility to encode the branch-wise Batch Ticket for the number and amount of cheques in the lot and ultimately the Block Ticket prepared for the bank as a whole on the basis of the cumulated batch values of instruments presented by a bank.

2. Initially, when MICR technology was introduced at the four metropolitan centres a decade ago, banks had installed stand alone encoder machines without PC interface. Presently, however, the technology has advanced and encoders with P.C. interface are available, by use of which additional data including the information of pay-in-slip can be entered so that full outward clearing information could be taken on the P.C. at the branch for balancing of outward clearing and also for further processing of the data so captured for accounting purposes. MICR Readers are available with PC interface for capturing the preprinted information in the MICR code line to save on data entry and also ensuring accuracy. Recently, MICR Reader-cum-Encoders have also come in the market, using which it is possible to capture the data of the pre-printed fields in the MICR code line and supplement the information with data entry as also encoding of the instruments simultaneously. This will enable balancing of the outward clearing and also building up the data base on cheques presented for subsequent use say for posting of the ledgers, etc. Encoding of the instruments could be done simultaneously or later on by encoding the instruments at one go (power encoding) on the basis of the data file. The type of encoder to be purchased by a member bank would, therefore, depend upon the existing and proposed level of computerisation in the branches/ Service Branch where the encoders are to be located.

3. Depending upon the total volume of the cheques presented in clearing and the volume handled at the individual branches, encoders may have to be installed at the Service Branch to encode cheques centrally or having encoders also at some branches having adequate volume so that the cheques could be encoded at the branches and the completed batches could be forwarded to Service Branch for presentation. The banks will have to take their own decision on whether to encode cheques centrally or decentralise encoding work, fully or partly, depending upon the cheque volume, space and organisational availability. Necessary guidance in this regard could also be obtained by the banks from their Service Branch at any of the existing MICR centres.

4. Presently, some MICR Document Encoders are manufactured / assembled locally. Several companies are also supplying imported MICR Document Encoders/Readers/ Reader-cum-Encoders with PC interface. M/s APLAB Industries Ltd., M/s Bradma India Ltd., M/s Kores India Ltd., M/s NCR Corporation (India) Pvt., Ltd.,M/s Tata Infotech Ltd., etc., are some of the companies who supply such equipments. The list is only indicative and not exhaustive, there could be more such suppliers. For further information and guidelines for procurement, the member banks are advised to get in touch with their Service Branches at the four metropolitan cities or their Computer Policy and Planning Department.

5. The encoders, being computer peripherals, need dust free environment. Suitable site preparation, power connection, air-conditioning, etc., may have to be provided in consultation with the suppliers of the machines. Encoder operation, being quite simple, the existing staff could handle the work with minimum training. The vendors supply the necessary operation manuals along with the equipment and also provide training to the operators. They also provide post-warranty maintenance of the machines.

6. The quality of encoding is crucial to the MICR cheque processing system since bad quality encoding or use of sub-standard MICR ribbon could lead to large number of rejects during machine processing of the instruments at the MICR centres. This, apart from increasing the workload at the cheque processing centre, could also lead to errors in reading/data correction resulting in avoidable clearing differences. It is, therefore, necessary that the encoders are placed in clean environment and are serviced by vendors regularly. The quality of the MICR ribbon used on the encoder machines is also another important factor. The bank should procure good quality MICR ribbons. The ribbons have a limited shelf life and hence should not be procured in bulk and also should be stored properly in dust free environment. The banks should peruse the Reject Analysis Report furnished by the MICR Cheque Processing Centre regularly and take prompt corrective action.

ANNEXURE X

Special Crossing Stamp

ANNEXURE XI

Format of Local Clearing Stamp

Reverse of the cheque or other payment instrument