Clearing and Collection of Instruments-BACH-BACPS
Clearing and Collection of Instruments: BACH, BACPS:
Clearing is the process of collection of proceeds of instruments of different banks by a collecting bank through some systematic procedures with the involvement of Central Bank.
“BACH” (Bangladesh Automated Clearing House) means the overall system and facility that supports the Exchange and settlement of payment items between Participating Banks
and the Bangladesh Bank.
1. BACPS- Bangladesh Automated Cheque Processing System “BACPS” means a facility that clears cheques and approved payment items for Bank companies.
2. BEFTN- Bangladesh Electronic Fund Transfer Network The Bangladesh Electronic Funds Transfer Network (BEFTN) will operate as a processing and delivery centre providing for the distribution and settlement of electronic credit and debit instruments among all participating banks.
Magnetic ink character recognition, or MICR, is a character recognition technology used primarily by the banking industry to facilitate the processing and clearance of cheques and
Responsibility of Presenting Bank:
1. Comply with the BACPS rules.
2. Certifies that presented item is a copy of the original instrument.
3. Prima facie genuineness of the cheque be verified with
i) Due diligence and ordinary care.
ii) Genuineness of the cheque leaf,
iii) Material alteration of payee name, amount or date.
iv) Verification by UV detector
4. Instruments, Image & data preserve for 6 years.
5. Original cheque available for inspection within 7 calendar days.
6. If failed, it will result in non-payment of the instrument.
7. Credit to customer A/C on settlement date or internal rules of the bank.
8. Central Bank holding the Bank’s Settlement A/C to credit on house date.
9. Indemnify the BB processing/settling for the item for any loss or expense.
Presenting Banks Due Diligence:
1. Verify the prima facie genuineness of the cheque
2. To be truncated
3. Attempt to detect any fraud, forgery or tampering
4. Enforce KYC norms in letter and spirit.
5. Observe all precautions, which a prudent banker takes,
6. To check the apparent tenor of the instrument,
7. Physical feels of the instrument,
8. Tampering visible to the naked eye with reasonable care, etc.
For Enhanced Attention for Suitable Risk Management Techniques:
1. Scrutiny of high value transactions,
2. Limit based checking by officials,
3. New account alerts, etc.
Operational Due Diligence:
1. Sorting of Instruments
3. Capture of images and data
4. Reject repair and balancing
5. DIN (document identification no.) endorsement
6. Re-presented cheques
8. Master table synchronization
9. Image quality checking
10. Handling Image Quality Analysis (IQA) failure
11. Frequency of submission
12. Submitting electronic data and images
13. Alternative delivery media
14. Submitting items to The Bureau Service
15. Electronic File Acceptance or not Acceptance 16. Internal Control
Responsibility of Paying Bank as regards settlement:
1. Comply with the applicable BACPS rules
2. Agrees to process the item in accordance with these Rules.
3. Authorizes the Bangladesh Bank to charge the amount of a payment item to the Paying Bank’s Settlement Account on the Settlement Date.
4. Indemnify the Bangladesh Bank for any loss or expense incurred as a result of a breach of the foregoing agreements or of any action taken by the Bangladesh.
5. The agreements, authorization and indemnity do not limit any other agreement, authorization or indemnity not inconsistent with these Rules.
6. Return an approved payment item to the Bangladesh Bank by the deadline in the BACPS schedule.
7. Taking Positive Pay Instruction from cheque issuer.
Paying Bank’s Due Diligence:
1. Transmission of Posting File
2. Digital Certificate Verification of CHM (Clearing House Module)
3. Payment Processing
a. Signature verification
b. Account balance verification
c. Verification of endorsement
d. Positive Pay instruction
e. Restriction to account by customer or other legal authority
f. Stop payment verification
g. Verification of date
h. Matching amount and figure
i. Verification of data entry error
j. Other prudent practice
4. Returned Cheque Items that fail paying bank approval and are therefore not to be honoured and are required to be returned to the BACPS in electronic format.
5. Request for paper The paying bank may, request a physical instrument from the presenting bank; if it believes that the item is not genuine or has questions about its validity.
6. Internal Control: In addition to the inward instruments drawn on branches of a bank, the reports generated by
the Clearing House would contain the summary position of the total number of instruments and the total value thereof.
Processing at PBM (Participating Bank Module):
The BACPS Participating Bank Module (PBM) provides cheque envelope validation and provides an interface for sending and receiving cheque envelopes from and to BACPS.
For Outward Clearing:
1. Duplication Checking
a. Destination Routing Number
b. Origin Routing Number
c. File Creation Date
d. File Creation Time
e. File ID Modifier
2. Receiving Outward Presentment
3. Image Quality Analysis and Failure Handling
4. Item Processing
5. Session Attachment
6. Use of PKI (Public Key Infrastructure)
7. Reconciliation of Outward Presentment
For Inward Clearing:
1. Receipt of Inward Data/Images
2. Validation, Authentication and Acknowledgement
3. Control Mechanism
4. Generation of Posting File Eligible Instruments for BACPS
The whole system is highly secured but some fraudulent attempts have found misusing the BACPS system:
Reasons behind fraudulent attempt
a. Material alternation in amount both numeric and word figure
b. Material alternation in instrument no.
c. Material alternation in MICR encoded line
d. Material alternation in MICR line
e. Duplicate print
a. Verifying by UV detector before present
b. Instrument print with erasable UV ink
c. Positive pay Instruction
d. New account alert
e. KYC update and monitoring Example
Value Date Clearing:
a) When an outward clearing instrument is posted in the system, the amount lye at the account as un-cleared balance.
b) Based on type of clearing, the instrument has a maturity date i.e. date when the instrument is supposed to honor through clearing house.
c) If the instrument is not return by the drawee Bank, on the maturity date the instrument amount is accumulated with available balance at the account level as cleared fund after
running Value date clearing process in the system.
Same Day Clearing:
Bangladesh Bank, Dhaka introduced another clearing house named “Same Day Clearing” for quick clearing large amount instruments. This clearing house deals with instruments
drawn on Branches of different Bank and for the instrument amount Tk. 5.00 lac and above. As regards the timing of clearing for presentation of instruments followed as per the detailed Guidelines of the Bank.
Bangladesh Electronic Funds Transfer Network (BEFTN): The Bangladesh Electronic Funds Transfer Network (BEFTN) will operate as a processing and delivery centre
providing for the distribution and settlement of electronic credit and debit instruments among all participating banks. This Network will operate in a real‐time batch processing
mode. All payment transactions will be calculated into a single multilateral netting figure for each individual bank. Final settlement will take place using accounts that are maintained
with Bangladesh Bank.
Participants in BEFTN: The EFT Network is a multilateral electronic clearing system in which electronic payment instructions will be exchanged among Scheduled Banks. The
system involves transmitting, reconciling and calculating the net position of each individual participant at the end of each processing cycle. The participants involved are:
(b) Originating Bank (OB)
(c) Bangladesh Electronic Funds Transfer Network (EFT Operator)
(d) Receiving Bank (RB)
(f) Correspondent Bank
Consumer vs. Corporate Payments: EFT transactions are typically categorized as either consumer payments, Government payments or commercial payments. These transactions are
defined in accordance with the relationship of parties involved in the transaction and the type of receiver account.
Consumer payments that could be made via the EFT network include credit applications such as payroll, dividend, interest and annuity payments and so on. Consumer EFT debit
applications include the collection of utility bills, insurance premiums, loan installments and other recurring obligations.
Corporate EFT applications include cash collection and disbursement, corporate trade payments, government, tax payments etc. Cash collection and disbursement allows
companies to achieve efficiency in cash management through intra‐company transfer of funds. Corporate trade payments enable corporations to exchange both data and funds with
trading partners, facilitating an automated process of updating their accounts receivable and accounts payable systems.
Preauthorized Bill Payment: A preauthorized payment is a debit application. Companies with existing relationship with the customers may participate in the EFT through the
electronic transfer (direct debit) of bill payment entries. Through standing authorizations, the consumer grants the company authority to initiate periodic charges to his or her account as
bills become due. This concept is especially applicable in situations where the recurring bills are regular and do not vary in amount such as insurance premiums, loan installments, etc.
Standing authorization may also used for bills where the amount does vary, such as utility payments.
Real Time Gross Settlement (RTGS):
An RTGS system is a gross settlement system of money or securities in which both processing and final settlement of funds transfer instructions can take place continuously (i.e., in real time). It will enable instant settlement of high value local currency transactions as well as government securities and foreign currency based transactions. As it is a gross
settlement system, transfers are settled individually, i.e., without netting debits against credits. An RTGS system can thus be characterized as a fund transfer system that is able to
provide continuous intraday finality for individual transfers. In RTGS or large-value funds transfer system, the transmission and processing of payment messages are typically automated or electronic, while settlement takes place in central bank funds. Along with these individual interbank transactions all other Deferred Net Settlement Batches (DNSB) such as
BACPS, BEFTN or NPSB will settle their net position through RTGS system, RTGS in turn will be linked to Bangladesh Bank core banking solution.
Note: Discussion on BACH, BEFTN and RTGS has been made in general. However the concerned officers of the bank must follow the detailed operational guidelines in these regards.
Account means an account with reserve and/or clearing balances on the books of the Bangladesh Bank.
Archive means a repository used to store and index Images and associated information, including MICR line information, item sequence number, and full audit trail information, for
necessary retention and accessibility.
BACH (Bangladesh Automated Clearing House) means the overall system and facility that supports the Exchange and settlement of payment items between Participating Banks and the Bangladesh Bank.
BACPS (Bangladesh Automated Cheque Processing System) means a facility that clears cheques and approved payment items for Bank companies.
BACPS-Eligible Item means an electronic copy of a paper-based Payment Item that the Presenting bank certifies is a copy of the original instrument acceptable for Exchange using MICR and Image technologies and is listed as one of the Items or instruments in Chapter 3, section 8 of these Rules.
BACPS Participating Bank Module means the software and equipment that manages the transmission and receipt of BACPS Cheque Envelopes, acknowledges receipt of BACPS Cheque Envelopes, and interfaces with the Banking Companies’ host systems.
BACPS Cheque Envelope means an electronic file that is exchanged between a Sending and a Receiving Point, which contains electronic information representing BACPS-eligible
Items, Returned BACPS Items, and the relevant audit trail information.
BEFTN– Bangladesh Electronic Fund Transfer Network The Bangladesh Electronic Funds Transfer Network (BEFTN)
Business Day means a Banking day including all days except weekly holidays and all approved Bank holidays.
Bureau Service means BACPS cheque processing service offered by the Bangladesh Bank to process the Outward Clearings on behalf of the commercial banks.
Capturing Bank means a Bank or the Bangladesh Bank that creates or purports to create an Image of a BACPS-eligible Item on its own behalf or on behalf of another Bank.
Cheque Truncation means the process by which the physical movement of a cheque within a Banking company, between banking companies is stopped and replaced by the exchange,
or storage, of Images and corresponding electronic information.
Cheque Image means a digital representation of the front and back of a cheque.
Clearing means the exchange of payment instructions between payment system participants, and includes without limitation, the processes associated with clearing, sorting, editing,
netting and prioritizing such instructions or orders in whatever form these take.
Convenience Amount means the amount that appears on a cheque that is normally written in numeric values.
Correspondent Bank means bank acting on behalf of a participating Bank. That means it will send and received approved payment items to and from Bangladesh Bank on behalf of the participating bank(s).
Counterfeit Item means an Item that appears to be original or genuine, but has been fraudulently made and, for the purpose of these Rules, shall be considered an Item with a Forged or Unauthorized Signature.
Electronic Cheque: is an electronic version of a paper cheque, including date, payee name, payment amount, and signature.
Electronic Cheque Presentment (ECP) means the process by which BACPS-eligible Items, Returned BACPS Items and Redirected Returned BACPS Items are exchanged
through the transmission and receipt of Images and corresponding electronic information.
Exchange means the delivery and receipt of Payment Items.
Financial Institution: as defined in clause (b) of section 2 of the Financial Institutions Act, 1993.
Forged or Unauthorized Signature means
(i) a signature on the face of an Item that is not the signature of the person (the drawer) that it purports to be, or
(ii) a signature that is written on or applied to an Item without the drawer’s authority.
Force Majeure means any event beyond the control of a Banking company that could not be avoided by the exercise of such standard of care as is reasonable in the circumstances,
including acts of God (earthquakes, natural floods, and storms), fire, explosion, war, insurrection, riot, disaster, and civil disorder.
High Value Items means Item amounting taka 5.00 (Five) lacks and above. Item means an instruction for the payment of money via an approved payment instrument (negotiable
instrument) that is handled by the Bangladesh Bank for clearing and settlement under these rules.
Legal Amount means the amount of a cheque that is normally written in words.
Magnetic Ink Character Recognition (MICR) means the machine recognition of numeric data printed with magnetically charged ink.
Material Alteration means an unauthorized change to one or more of the completed details of an originally authorized Item, and includes those material alterations identified in the
Negotiable Instruments Act, 1881 which are alterations:
(i) to the date,
(ii) to the sum payable,
(iii) of the time of payment,
(iv) of the place of payment, or
(v) of the addition of a place of payment without the acceptor’s asset where a bill has been accepted generally, as well as any alteration of the Paying Bank or of the payee name.
Participating Bank means a Bank who is a participant in the BACH.
Paying Bank means the Bank upon which a Cheque or other item is drawn.
Presenting Bank means the Bank presenting a Cheque or other items for collection.
Public Key Infrastructure means a set of cryptographic techniques in which two different keys (private and public keys) are used for encrypting and decrypting data. Its holder keeps
the private key secret while the public key is made available to communicating entities.
Returned BACPS item means the corresponding payment information of a BACPS eligible Item that is returned to the Presenting Bank in accordance with and for any reason permitted by these Rules.
Sending Point/Receiving Point A bank will have one single point of connection with BACH which will be termed as sending/receiving point. The PBM will be located at this
Settlement Account means the Account at the Bangladesh Bank that the Participating Bank maintains for the purpose of settlement.
Settlement Date means the date for settlement of an item as provided in these Rules.
Service Branch is a branch, which will act as a sending and receiving point, for each individual bank there will be only one service branch for each bank.
Truncation means a settlement process in which the physical exchange of a paper based payment instrument is substituted by the exchange of images and data in electronic format.
Cheque truncation involves stopping the physical movement of cheques and the replacement of physical instrument by images of the instrument and corresponding data contained in the item MICR line.
Truncation Point is a point from which physical movement of an instrument is stopped, here the image and data will be captured and transmitted to the service branch. A bank may
have multiple truncation points.
Unqualified Item refers to an item, which does not meet the criteria of a BACPS eligible Item.
Unusable Image means an Image that does not meet the requirements of the Image Usability Standard.
Note: An instruction circular of the bank regarding the implementation of upgraded version of Bangladesh Automated Clearing House is placed in annexure- 13 for compliance.
Questions and answer indications
1. Define BACH. (6.2)
2. Define BACPS. (6.2)
3. What do you mean by BEFTN? (6.2)
4. State the responsibilities of presenting bank under BACH. (6.4)
5. What are the responsibilities of paying bank as regard settlement of Payment under BACH. (6.7)
6. What is same day clearing? (6.12)
7. Define RTGS. (5.13)