MICR means magnetic ink character recognition
At the bottom of cheque, demand draft, interest warrant, dividend warrant etc., there is a separate portion called as MICR portion. This portion is specially printed with magnetic ink at the time of printing of the instrument itself.
This MICR portion consists of the following:
Cheque/DD number; MICR code and account category code
When it comes to MICR code, it consists of nine numerical digits.
The first three digits represent centre/city (Say Chennai)
The middle three digits represent the name of the bank (Say SBI)
The last three digits represent the bank branch (Say SBI, Karolbagh, New Delhi)
The account category is represented by the code - 01, 02, 03 etc., For example 01 may represent savings; 02 - current and 03- overdraft/cash credit accounts
MICR is for the purpose of speedy clearing at the clearing house, when the cheques are presented physically in the clearing house. This is possible only in clearing centres where MICR processing facility is available and not all centres.
At the time of inwarding the cheques at the collecting branch of the amount of the cheque is keyed in the micro scanner and the scanner immediately captures the following details namely - Cheque No; Name of the centre; Name of the bank; Name of the branch and account category as available from the MICR portion and the amount just keyed in by the bank clerk/teller. The cheques so scanned are sent to the clearing house along with the software details of all cheques and at the clearing house, the sorting of cheques are done within a short time.
However, on account of core banking solution recently introduced in commercial banking system in India, they follow CHEQUE TRUNCATION SYSTEM and by this system, the cheques are scanned and the scanned images are sent to the clearing house and there is no need to present the cheques physically. The physical cheques are kept at the collecting branch of the bank for future reference if any