Banking terms you must know and how to use them


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MICR: Magnetic ink char acter recognition

What is it: MICR code (pronounced my-ker) is a nine-digit number printed on banking instruments such as a cheque or a demand draft using a special type of ink made of magnetic material. The first three digits denote the city. The fourth to sixth digits denote the bank, while the last three digits denote the branch number. The code is read by a machine, minimizing the chances of error in clearing of cheques, thereby making funds transfer faster. For example, in the MICR code 400240019, 400 denotes Mumbai, 240 denotes HDFC Bank Ltd and 019 denotes the Colaba branch of the bank.
You will find the number on the right of the cheque number at the bottom of the cheque leaf.


RTGS: Real time gross settlement

What is it: It’s a fund transfer mechanism that enables money to move from one bank to another on a real time and gross basis. Simply put, real time means the transaction is settled instantly without any waiting period and gross means that it is not bunched with any other transaction.
You can transfer a minimum of Rs1 lakh through RTGS; there is no upper ceiling though. The bank will charge you Rs25-Rs50 for an outward RTGS transaction, inward transactions are free. RTGS is the fastest inter-bank money transfer facility available through secure banking channels in India. But not all branches in India are RTGS enabled. Visit the Reserve Bank of India’s (RBI) website for a list of branches where you will get this facility.
When do you need it: This facility would be handy during an emergency, when you need to transfer funds quickly, imagine an ill child studying in another city or a parent in an emergency situation and needing money at once. You would be able to use this facility if you use Internet banking as a channel.
It is mostly used by high networth individuals and businessmen, who have at least Rs1 lakh to be transferred business associates or clients.

NEFT: National electronic funds transfer

What is it: NEFT enables funds transfer from one bank to another but works a bit differently than RTGS since the settlement takes place in batches rather than individually, making NEFT slower than RTGS.
The transfer is not direct and RBI acts as the service provider to transfer the money from one account to another. You can transfer any amount through NEFT, even a rupee.
You won’t have to pay any fee for inward transfer of funds, but for outward transactions the charges can be from Rs5-Rs25 depending on the amount transferred.
When do you need it: You can use this facility if you want to transfer funds online in a day or two.
NEFT can make life easier for those who need to send money to their parents or children living in another city. It cuts the trouble of issuing a cheque or draft and posting it.
NEFT, too, can be done only through Internet banking. Visit RBI website for a list of branches where you will get this facility.

IFSC: India financial system code

What is it: An 11-digit alphanumeric (letters and numbers) code that helps identify bank branches. The first four numbers represent the bank’s code (alphabetic), the fifth number is a control character (0), and the next six numbers denote a bank branch. For example, the IFSC for HDFC Bank Ltd’s Colaba branch in Mumbai reads as HDFC0000085. This code is mentioned on your cheque. Different banks mention it at different places on the cheque.


PAP: Payable at par or MCC: Multi-city cheques
What is it: PAP or MCC cheques can be encashed anywhere in India, irrespective of the city they were issued in. They are treated as local clearing cheques across the country. The amount is credited in the account the same day and there are no inter-city collection charges associated with a normal cheques being encashed in another city.
A cheque issued at a branch in Chennai, can be encashed at a branch in Dibrugarh as if it were a local cheque.