BACH Operation

Kazi Mohammad Ismail

Principal Officer & Incharge
IBBL Contact Center
ADD, ICTW, HO
89, Mohakhali C/A, Dhaka

BACH in Definition
Bangladesh Automated Clearing House
BACH means the overall system and facility that supports the Exchange and settlement of payment
items between Participating Banks and the Bangladesh Bank.

BACH Component
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.

BACH Implementation History

BACPS
1.
2.
3.
4.
5.
6.

Central Bank Started Project on 2008 partnership with DFID, UK

Payment & Settlement System Regulation issued on 2009
MICR Cheque issue started from 2009
BACPS Rules and Procedure Circular Issued on 17.01.2010
Live Day Simulation (LDS) started on 04.08.2010
BACPS go Live operation Started on 7.10.2010

BEFTN
1. BEFTN Operating Rules issued on 10.08.2010
2. BEFTN Live Operation started on 28.02.2011
* This paper is prepared as per BACPS & BEFTN rules & Procedures

BACH Infrastructure

Manual Clearing Flow

Automated Clearing Flow

Image of Cheque Scanner

Cheque Orientation:-

Put the Cheque here.

Front side of Cheque will place
at right side and back side will
place left side.

20 or 30 Cheques may
scan at a time.

Be sure no pin with the

cheque while scanning.

Introduction of MICR Cheque

Front View

Instrument No. (7 digit)

Routing No. (9 digit) Ins. A/c No. (13 digit) Instrument Type (2 digit)

Rear View

Payees A/C no. & Phone No

Clearing Stamp

Endorsement & Sign

Endorsement line print

Manual & Automated Clearing

Manual Clearing

Automated Clearing

1. 45 clearing house in the country

1. Only one clearing house instead of 45

2. Human required in clearing house

2. No Human required in Clearing House

3. Time consuming

3. Time reduced tremendously

4. Huge collection cost from outside city

4. Collection cost is same as own city

5. Time session may change by request

5. Time session is automated & unchangeable

6. Establishment cost very poor

6. Establishment cost is very high

7. No charge from client

7. Charges are collecting from client

8. Same Day clearing for only few branch

8. Same Day clearing for whole country

9. Used by NIKASH or manual ledger

9. Operated by Cheque Processing System

10. Data cannot save long time

10. Data and Image have to save for 12 years

11. Paying Bank preserve own cheques

11. Presenting Bank preserve other banks cheques

12. Non MICR cheque can clear

12. Non MICR cheque is unacceptable

13. Positive pay Instruction not mandatory

13. Positive Pay Instruction is mandatory

14. Paying banks responsibility is high

14. Presenting banks responsibility is high

15. UV detector not required

15. UV detector is mandatory

16. Cheque lost incident was high

16. Cheque lost incident is low

17. Physical movement was obvious need

17. Physical movement was truncated

18. Cheque mutilation possibility was high

18. Cheque mutilation possibility is rare

19. No centralized system

19. Processed under a secured centralized system

20. Dependency on network was absent

20. Dependency on network is must

21. High tech equipment not required

21. High tech equipment required

22. Physical cheques presented through BB

22. Only Data and Image presented through BB

23. Controlled by Local Main Branches

23. Controlled by BACH Manager and Service

Branch

24. Return reason were 7 to 15

25. Fraudulent attempt were frequent

24. Return reason are more than 29

25. Fraudulent attempt are reduced

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 Banks Settlement A/C to credit on house date.
9. Indemnify the BB processing/settling for the item for any loss or expense.
10. Reconciliation.

Presenting Banks Due Diligence

As settlement will be done on the basis of image and data, conducting due diligence is the responsibility
of the presenting bank
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 feel of the instrument,
8. Tampering visible to the naked eye with reasonable care, etc.
For enhanced attention banks may employ suitable risk management techniques like
1. Scrutiny of high value transactions,
2. Limit based checking by officials,
3. New accounts alerts, etc.

Operational Due Diligence

1.
2.
3.
4.
5.
6.
7.
8.

Sorting of Instruments
Stamping
Capture of images and data
Reject repair and balancing
DIN (document identification no) endorsement
Re presented cheques
Validation
Master table synchronization

9.
10.
11.
12.
13.
14.
15.
16.

Image quality checking

Handling IQA failure
Frequency of submission
Submitting electronic data and images
Alternative delivery media
Submitting items to The Bureau Service
Electronic File Acceptance or not Acceptance
Internal Control

Responsibility of Paying Bank

A Paying Bank, by maintaining or using an Account with the Bangladesh Bank for settlement of items or
by accepting an item from the Bangladesh Bank:
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 Banks
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 Banks Due Diligence

1. Transmission of Posting File
2. Digital Certificate Verification of CHM
3. Payment Processing
i) Signature verification
ii) Account balance verification
iii) Verification of endorsement
iv) Positive Pay instruction
v) Restriction to account by customer or other legal authority
vi) Stop payment verification
vii) Verification of date
viii) Matching amount and figure
ix) verification of data entry error
x) vii) Other prudent practice
4. Returned Cheque
5. Request for Paper
6. Internal Control
7. Reconciliation of Clearing Differences

Abbreviation
1.
2.
3.
4.
5.
6.

MICR: Magnetic Ink Character Recognition

CPS : Cheque Processing System
CBS : Core Banking System
CH : Clearing House
CHM: Clearing House Module
PBM: Participant Banks Module

7.
8.
9.
10.
11.

OCE: Outward Cheque Envelope

ORE: Outward Return Envelope
ICE : Inward Cheque Envelope
IRE : Inward Return Envelope
IQA : Image Quality Analysis

Processing at PBM
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
i) Destination Routing Number
ii) Origin Routing Number
iii) File Creation Date
iv) File Creation Time
v) File ID Modifier
2. Receiving Outward Presentment
3. Image Quality Analysis and Failure Handling
4. Item Processing
5. Session Attachment
6. Use of PKI
7. Reconciliation of Outward Presentment

For Inward Clearing

1.
2.
3.
4.

Receipt of Inward Data/Images

Validation, Authentication and Acknowledgement
Control Mechanism
Generation of Posting File

Eligible Instruments for BACPS

Following MICR encoded payment Items and instruments are eligible for BACPS
No.

Type of Instruments

MICR CODE

No.

Type of Instruments

MICR CODE

Savings Bank Account Cheque

10

Current Account Cheque

11

Refund Warrant

18

Bankers Cheque

12

Pay Order

19

Cash Credit Account Cheque

13

Govt. Cheque

31, 32

Dividend Warrant

14

Credit Card Cheque

20

10

Demand Draft

15

11

Foreign Taka Demand Draft

23

12

Gift Cheque

16

13

Fractional Dividend Warrant

15

14

Interest Warrant

17

BACPS Threats
The whole system is highly secured but some fraudulent attempts have found misusing the BACPS
system:
What they did 1) Material alternation in amount both numeric and word figure
2) Material alternation in instrument no.
3) Material alternation in MICR encoded line
4) Material alternation in MICR line
5) Duplicate print
Protection way 1) Verifying by UV detector before present
2) Instrument print with erasable UV ink
3) Positive pay Instruction
4) New account alert
5) KYC update and monitoring

Example

Bangladesh Electronic Funds Transfer Network (BEFTN)

Kazi Mohammad Ismail
Principal Officer & Incharge
IBBL Contact Center, ADD, ICTW, HO
89, Mohakhali C/A, Dhaka
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 realtime 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:
(a) Originator.
(b) Originating Bank (OB)
(c) Bangladesh Electronic Funds Transfer Network (EFT Operator)
(d) Receiving Bank (RB)
(e) Receiver
(f) Correspondent Bank
a) Originator
The Originator is the entity that agrees to initiate EFT entries into the network according to an
arrangement with a receiver. The originator is usually a company, government agency or an individual
directing a transfer of funds to or from a consumers or a companys account. The originator executes an
EFT fund transfer entry through an Originating Bank (OB).
b) Originating Bank (OB)
The originating bank is the bank which receives payment instructions from its client (the originator) and
forwards the entry to the BEFTN. A bank may participate in the EFT system as a receiving bank without
acting as an originating bank; however, if a Bank chooses to originate EFT entries, it must also agree to
act as a receiving bank.
c) Bangladesh Electronic Funds Transfer Network (BEFTN)
BEFTN is the central clearing facility, operated by Bangladesh Bank that receives entries from OBs,
distributes the entries to appropriate RBs, and facilitates the settlement functions for the participating
banking institutions

d) Receiving Bank (RB)

The receiving bank is the bank that will receive EFT entries from BEFTN and post the entries to the
account of its depositors (Receivers).
e) Receiver
A receiver is a person/organization who has authorized an Originator to transmit an EFT entry to the
account of the receiver maintained with the Receiving Bank (RB).
f) Correspondent Bank
In some cases an Originator, Originating Bank or Receiving Bank may choose to use the services of a
Correspondent Bank for all or part of the process of handling EFT entries. A Correspondent Banks
function can include, but is not limited to, the creation of EFT files on behalf of the Originator or acting
on behalf of an OB or RB, respectively. All Correspondent Banks must be approved by Bangladesh Bank
before a bank enters into an agreement with the Correspondent Bank.

Authorization
A written arrangement with the originating company signed by an employee or customer to allow
payments processed through the EFT Network to be deposited in or withdrawn from his or her account
at a bank. Authorization can also be a written agreement that defines the terms, conditions and legal
relationship between Originator and Receiver.

EFT Transaction Flow

EFT Entries
A) EFT Credits
Inward Foreign remittances
Domestic remittances
Payroll private and government
Dividends/Interest/Refunds of IPO
Business to business payments (B2B)
Government tax payments
Government vendor payments
Customerinitiated transactions

B) EFT Debits
Utility bill payments
Equal Monthly Installments (EMI)
Government tax payments
Government license fees
Insurance premium
Mortgage payments
Club/Association subscriptions

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 intracompany 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.

Payment Application
I. Consumer Applications
CIE Customer Initiated Entry: Customer initiated entries are limited to credit applications where the
consumer initiates the transfer of funds to a company or person for payment of funds owed to that
company or person, typical example of these entries are utility bill and other Internet banking product
payments.
PPD Prearranged Payment and Deposit Entry
Direct Deposit: Direct deposit is a credit application that transfers funds into a consumers account at
the receiving bank. The funds being deposited can represent a variety of products such as payroll,
remittances, interest, pension, dividends and/or refunds, etc.
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.
II. Corporate Applications
CCD Corporate Credit or Debit: This application can be either a credit or a debit application where
funds are either distributed or consolidated between corporate entities or government entities. This
application can serve as a standalone fund transfer between corporate or government entities, or it can
support a limited disclosure of information when the funds are being transferred between organizations
(i.e. sister concerns) under the same group.
CTX Corporate Trade Exchange: This application supports the transfer of funds (debit or credit)
within a trading partner relationship in which business payment remittance information is sent with the
funds transfer. The paymentrelated information is placed in multiple addenda records in a format
agreed to by the parties and BEFTN.
III. Other Applications
ADV Automated Accounting Advice: This SEC Code represents an optional service to be provided by
BEFTN that identifies automated accounting advices of EFT accounting information in machinereadable
format to facilitate the automation of accounting information for Participating Banks.

Settlement
Settlement is the actual transfer of the funds between participating banks to complete the payment
instruction of an EFT entry. The transactions processed by the BEFTN will affect the accounts of the
concerned banks maintaining accounts with BB at the end of each processing cycle.

Legal Framework
1) The EFT process operates from beginning to end through a series of legal agreements.
2) BEFTN Rules and Procedures
Other laws/regulations that have a direct bearing on EFT operation are listed as under:
Bangladesh Bank Order, 1972 (Amended 2003)
The Banks Companies Act, 1991
Money Laundering Prevention Act, 2009
Information and Communication Technology Act, 2006.
The Bankruptcy Act, 1997
The Foreign Exchange Guidelines, Volume 1 & 2.
Foreign Exchange Regulation Act, 1947.
The Bangladesh Telecommunication Act, 2001.
Anti Terrorism Act 2009
Combating on Financial Terrorism Act 2013
Bangladesh Payment and Settlement Systems Regulations, 2009 (amendment 2013)