What is Electronic Clearing Service (ECS)?
- Electronic clearing service is an electronic mode of funds transfer that can be repetitive and periodic in nature.
- It is used by organisations for making bulk payment of amounts towards distribution of dividend, salary, pension, etc., or for bulk collection of amounts towards dues, tax collections, loan installment repayments, etc.
- It basically facilitates bulk transfer of funds from one bank account to many bank accounts or vice versa.
- This service includes transactions processed under National Automated Clearing House (NACH) operated by National Payments Corporation of India (NPCI) under Payment and Settlement Systems Act 2007
Types of Electronic Clearing Service (ECS)
Electronic clearing service is of two types:
1. ECS credit: ECS credit is used for affording credit to a large number of beneficiaries (for instance, employees, investors etc.) by an organisation having accounts with bank branches at various locations within the jurisdiction of a ECS Centre by raising a single debit to the bank account of the user institution.
ECS Credit facilitates payment of amounts towards distribution of dividend, interest, salary, pension, etc., of the user institution. Furthermore, there is no amount limit in individual transactions.
2. ECS Debit : It is used by an organisation/ institution for raising debits to a large number of accounts (for instance, consumers of utility services, borrowers, investors in mutual funds etc.) maintained with bank branches at various locations within the jurisdiction of ECS Centre for single credit to the bank account of the user institution.
It is useful for utility bill payments, tax collections, repayment of installments, or services that demands periodic investments in mutual funds, insurance premium etc., that are periodic or repetitive in nature and payable to the user institution by large number of customers etc.
On the basis of the geographical location of branches covered, ECS Schemes are classified into three categories:
I. Local ECS: It operates at 81 centers across the country. It is operated by RBI.
II. Regional ECS (RECS): It operates at 9 locations across the country. The system takes advantage of the core banking system (CBS) in banks. Although the settlement between banks takes place centrally at one center in the State, the actual customers may have their accounts at various bank branches across the State or group of States. It is operated by RBI.
III. National ECS: It is the centralized version of ECS Credit currently having its operations at Mumbai facilitating the coverage of all CBS-enabled branches across the country.
Under this scheme, even though the settlement between banks takes place centrally at one location i.e., at Mumbai, the actual beneficiaries may have their accounts at various bank branches across the country.
Advantages of ECS
- It increases customer relationships
- It reduces paper use
- It does not inflict delayed payments costs
- It facilitates quick payment of bills
- It enhances the payment of essential utility bills for customers, such as electric bills, phone bills, internet bills, etc.
- It also enables the payment of insurance premiums, loan instalments, credit card payments, mutual funds etc.
Procedure to avail ECS Scheme
To avail ECS service, one needs to inform the bank in which he holds an account. In order to initiate the process further, he would have to provide a mandate that gives the institution an authority to either credit or debit the payments through the bank and details of his / her bank branch, account particulars.
The institution is held responsible to communicate all the details relating to the amount credited or debited through any means such as mobile alerts or emails etc.
RBI has deregulated the charges to be levied on ECS. Originating banks have to pay a nominal fee to the clearinghouse. Individuals are not charged for the ECS facility, but institutions are subject to a nominal payment. The nominal fee is 25 paise under ECS credit and for ECS debit it is 25 Paise for the clearing house and 50 paise the destination banks per transaction.
There is no value limit on the amount of individual transactions that can be collected by ECS Debit.
Discontinuing the ECS scheme
To initiate appropriate closure of the scheme, both the service provider who is the beneficiary of the payment and the bank, which is the channel of payment, will have to provide in a written application stating the closure of the scheme.
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