EFT IN INDIAN CONTEXT / BANK NET

EFT IN INDIAN CONTEXT / BANK NET

            EFT concept implemented in India with the help of BANKNET. Bank net is the 1^stnational level network in India which is commissioned in February 1991. It is a communication network established by RBI on the basis of recommendations of the committee appointed by RBI under the chairmanship of T.A.N. Iyer. It is in the implementation stage. Initially, it will provide communication among 7 centers i.e. Bombay, Chennai, Kolkata, Delhi, Nagpur, Bangalore, Hyderabad. RBI, 26 public sector banks, Indian banks association and discount and finance house of India have joined the network.

Application of Bank Net:

  EFT, Customers can draw cash against there deposits at any branch of the bank, remit funds immediately to any branch in the network.

  Inter bank funds transfer can be quickly settled.

  Automated clearing services provide faster credit to the customers.

  Database of the common interest can be maintained.

  Sales or purchase of foreign currency and related matters can be quickly settled.

  Data transmission between RBI and Commercial Bank.

  It provides across the SWIFT international network from different centers in the country.

  It includes electronic mail system.

Hardware of Bank Net:

            The required hardware includes personal computers, mini computers and main frames are connected in the network. The communication is through Catalyx-25 packets switching network. Other equipment used includes communication controls, Packet Assembler-Disassembler (PAD) and modems.

            One of the key elements of the system is telephone lines between various posts. The actual data is converted from digital signals to analog signals through a modem. The analog signals are transmitted on telephone lines. At the receiving end, a corresponding modem          reconverts the analog signals to digital, which can be understood by the computer.

PROCESS OF MANUAL CLEARING

            The Rangarajan committee 1984 has pointed out that the main function of a banking industry as a financial intermediary is implemented largely through cheques and such other instruments drawn on the banks. Clearing of cheques has become an extremely important are. Reduction in clearing time results in improving customers satisfactions. If the clearance of cheque is delayed, it may provide to cause troubles to marketing company and individual. If the entire work of clearing is handed manually, the cheques would be credited after a delay of 3-6 weeks. This means the funds are not available to the company during this period and it may in term, have to borrow the same money from the banks to keep its operations running. Effectively the company is paying interest to huge money which belongs to it in the first place.

Process of manual clearing:

a)      For local cheques:

Stage 1: outward clearing collecting bank

·            Cheque deposited by an account holder in bank branch.

·      Sorting of all the cheques and their listing and preparing bank wise packets and consolidation of amounts.

·      Transfer of packets with delivery statements to local main clearing branch of bank.

·      Branch wise deliveries verify and bank wise packets and delivery statements prepared.

·      Transfer to clearing house.

Stage 2: At the clearing house

·      Exchange of instruments and delivered by banks at the clearing house.

·      Generation of listing of bank wise deliveries and amounts to be received.

·      Working a bank by the bank position of payable and receivable.

·      Working out bank wise net payables/receivables and settlement.

Stage 3: Inward clearing ( At paying Bank )

·      Receipt of instruments delivered by banks at the clearing house.

·      Verification branch wise sorting, consolidation in balancing and summarizing.

·      Transfer of instruments to respective branches.

·      Verification of instruments received and passing the entries.

·      Recording of entries in the books of accounts.

·       Returning of unpayable cheques through step1 in stage 1

b)      For the outstation cheques:

The following steps are involved in clearing of outstation cheques in the manual process.

·      Deposit of the cheque by the customer.

·      Bank wise and centre wise sorting.

·      Dispatch of cheques to the regional collection centers or local main clearing branches in the respective centers.

·      Adjustment of transaction through debit/credit on inter-branch accounts.

·      Presentation of the cheques at the local clearing house.

·      Sending advice to the originating branches on realization or non-realization of cheques and adjustment of the entries through credit/debit on inter-branch accounts. 

·      Crediting the proceeds to the customer’s accounts or returning the non-realized cheques to the customers.

MICR (Magnetic Ink Character Recognizer)

            MICR is essentially a technology cheque processing mechanism. For this purpose the cheques should be standardized in size and it has to meet the following characteristics, then only it can be considered as MICR cheques.

Characteristics:

1.      Standard size: Two standard sizes are used for MICR cheques i.e. for savings and current a/c’s respectively.

a)      Size 1:For saving bank a/c the size of cheque should be 6.5” * 2.75”.

b)     Size 2:For current a/c, cash credit a/c’s, demand drafts the common size of MICR cheque should be 8” * 3.75”.

Size 1 cheques are applicable even for gift cheques and traveler cheques.

2.      Clear band: Each MICR cheque has a clear band width of 5/8” across the lower edges of the cheque. Certain numbers are pre coded on the bottom using special ink that contains magnetizable particles of iron oxide. This pre-coding is done with the help of an instrument called the encoder. The various codes are as below:

Field 1 {6 Digits}: Cheque serial number.

Field 2 {9 Digits} {Sort Code Field}:which uniquely describes city, bank and branch on which the cheque is drawn.

Area 2(a) {3 digits}: This code describes the city on which the cheque is drawn. For ex: 400 represent Mumbai, 700 Kolkata, and 110 Delhi etc.

Area 2(b) {3 digits}: This code represents or denotes on which bank the cheque has been drawn. For ex: 012 for BOB etc.

Area 2(c) {3 digits}: This code indicates the branch on which the cheque has been drawn. Each branch of the bank in any MICR center is given a unique code.

Field 3 {6 Digits} – A/c Number:At present, this field blank neither                         

Coding of this field would be necessary once                      of the country process is taken up for computerization is taken up for computerization is done. When this done, the paying bank branch would be able to directly debit the customers a/c from the MICR data, without having to perform any further inputs

Field 4 {2 Digits}: This represents transaction which denotes the type of instrument such as savings bank cheques, current a/c cheque, bankers cheque, DD etc.

Field 5 {3 Digits} – Amount:This is encoded by the collecting branch with the help of encoder.

Special symbols: Notice certain symbols used as the above cheque before and after area 1 and area 2. These symbols convey instructions to the equipment called reader sorter. For ex: The symbols before and after the area 1 indicate on us.

TECHNOLOGY OF MICR: Two specialized machines are used for the fast clearing of cheques which are explained in detail as below

1.      Encoder:It is a small machine which will perform the following transactions

·            To encode the amount in special ink which can be read by the reader sorter.

·            To print the interest of all instruments that has been encoded along with the totals.

·            To place a clearing and endorsement stamp at the back side of the instrument.

2.      Reader sorter: After encoding the cheques are accumulated into batches and placed in the input            of a reader sorter unit. As they enter the reading unit, the cheques pass through a magnetic field which causes the particles in the ink being magnetized.

Reader heads                 characters as they pass through the reading unit. The data read be entered directly into CPU, or they can be transferred to the magnetic tape for later processing.

Benefits of MICR technology:

  It takes less time to clearance of cheques, which results in tremendous satisfaction for the customers.

  Chances of errors are minimized because the instruments are read by the machines.

  The transfer settlement of funds between the banks is fast and easy.

  Reduces the burden on bank staff members.

  The work of clearing becomes easy.

Precautions to be observed in MICR technology:

  MICR instruments must not be folded.

  Nothing should be written on the band of codes.

  No rubber stamp should be fixed on the band line.

  Pins, stapler and gum must be avoided.

     OPTICAL CHARACTER READER (OCR)

                        This is a electronic system that permits the direct reading of any printed character. Introduction of this system enables an organization to eliminate or reduce input key difficulty. These devices are designed to recognize and interpret the hand made marks and characters, machine printed characters and special bar codes. Most of the OCR’s scan the printed matter with a photo electronic device called a scanner that recognizes the characters by the absorption or reflection of the light on document.

                        Optical readers can also recognize the data coded in the form of dark and light bars. Bar codes are commonly used to identify merchandise in retail stores. The primary advantage of OCR is that it eliminates some of the duplicates of the human effort required to get data into the computer.

Advantages:

ü  It permits the direct reading if any printed character.