RBI started this Automated Clearing House
(ACH) bulk payment system from 1996-97. RBI conducts ECS at 15 centres and State
Bank and other public sector banks operate the system in the remaining centers.
While ECS facilitate settlement of bulk payment instructions, EFT/NEFT
facilitated one-to-one remittances.
ECS (Dr/CR) has helped in eliminating
unavoidable paper instruments in respect of large volume, but relatively small
value payments of repetitive nature.
The clearing house advices the details of
beneficiary to the service branch of the respective banks at the destination.
The bank in turn credits the accounts of the beneficiaries. Un-credited items
are reported back to the clearing house of the destination bank, which passes
the information to the remitting bank.
Destination bank branches
have been directed to afford ECS Credit free of charge to the beneficiary
account holders. Banks
charge a fee from their customers for using this facility.
A customer can make payment of the bill of the
utility services either through cash or by means of cheque or by directly
crediting the bank account of the service provider by getting his account debited
with his bank.
Those business organisations which periodically
raise bills in respect of the
utility services provided by them such as telephone bills, electricity bills,
water bills,
repayment of loan instalments etc.,
use the mode of ECS (Debit).
The organization desirous of participating in ECS has to get
himself registered with the clearing house. Accounts of customers of the utility company in different banks are debited and amounts are transferred to the account of the utility concern.
For availing this facility, the consumer has to give an application (mandate) to the service provider to debit his bank account with the amount of the bills at regular intervals. The mandate is submitted along with photocopy of a blank cheque (duly marked as cancelled) to the service provider who submits the same to his bank. The blank cancelled cheque facilitates the banker to know the city code, bank code, branch code and transaction code of the mandatee from which the bill amount is to be deducted.
Once the mandate of the customer is registered by the bank (consumer’s bank), the service provider’s bank (utility company/firm) advises its counterpart to debit the account of the utility bill. The service provider also sends a copy of the bill to the customer for information. Accounts of customers availing utility services (maintained in different banks) are debited and account of service providers credited. ECS (Debit) works as a standing instruction.
Advantages:
ECS (Debit) is
advantageous to the service providers, customers and to the bank.
To the service provider (Institution): Funds are credited in the account in one go. It
saves the botheration of depositing cheques. Time involved in getting the
cheques cleared and account getting credited is saved. It helps in proper
management of funds.
To Customers: Customer is relieved of the botheration of keeping a track of the
bills as ECS ensures timely payment of utility bills.To Banks: Banks save expenses on printing of cheques on security paper and from the botheration of handling large volume of cheques in clearing.
RBI has directed banks that entries in the
statement of account/passbook of the customers should clearly reveal that the
transaction was through ECS debit and should contain the name of the
institution to which payments have been made.
ECS Credit Clearing:
The institution making payment has to get it registered with the ECS centre and has to give a mandate to debit its account maintained with his bank i.e. the sponsor bank. In case of any change in the bank or account number etc., the beneficiary has to inform the institution and submit another mandate.
The duly encrypted input data received from the sponsor bank on behalf of the user (client) is supplied to the National clearing cell / clearing house for processing. It is also provided to the banks at the destination and to the deposit account department of RBI/clearing agency for settlement.
The clearing house debits the account of the organisation maintained with the sponsor bank on the appointed day and credits the accounts of the recipient banks, for affording credit to the accounts of the ultimate beneficiaries. The accounts of beneficiaries are thus directly credited through the clearing system. In case credit could not be afforded to the account of beneficiaries the reverse process starts on the second day.
The securities market regulator (SEBI) has also issued guidelines to investors to furnish details of bank account in the share applications for printing the same on the physical interest / dividend warrants.
(i) To
the paying institution: Availing
ECS credit facility is advantageous to the institution.The organisation making
payment saves the cost of printing payment warrants for each beneficiary. The cost on mailing payment
warrants is saved. Even the chances of loosing payment
warrant in transit are eliminated. The chances of frauds due to loss/pilferages
of instruments in transit are also eliminated. The organization is able to mange funds properly.
(ii) To Customers: Availing ECS credit facility is advantageous
to customers, as account is directly credited. Time involved in clearance of
instrument is eliminated. Necessity of visiting branch exclusively for
depositing cheque is obviated. Chances of theft of physical instrument in
transit are eliminated. (iii) To Bank: Availing ECS credit facility is also beneficial to the bank. Banks burden in processing of large number of cheques/warrants is reduced. Bank can make use its staff for other productive purposes. Payment processing by destination banks becomes smooth and easy once a database is prepared, maintained and updated by the user institutions.
‘National
Electronic Clearing Service (NECS)’
NECS is the nation wide centralised version of ECS system.The Reserve Bank of India
Institutions desirous
of availing NECS facility have to get themselves registered with the clearing
house. NECS
has no restriction of centres in the country. As per the guidelines, branches
participating in NECS have to be core-banking-enabled. The system takes advantages of centralised
accounting system in banks. All CBS bank branches irrespective of their
location participate in the system. The Sponsor bank submits NECS data at Mumbai (single centre) where transactions are processed for the whole of
NECS have two variants
NECS (Credit) and NECS (Debit). The NECS (Credit) facilitates multiple credits
to beneficiaries’ account at bank branches spread across the country against a
single debit of the account of a user with the sponsor bank. The NECS (Debit)
facilitates multiple debits to destination account holders against single
credit to user account.
The account holder has to
give a mandate in triplicate (Original for the bank, one copy for the user
company and one for the customer) to the user institution for debiting and
effecting payment from the account. The mandate contains:
o
9 Digit Code numbers of Bank and Branch.
o
Type of account number with code. (SB/Current/ Cash Credit) -10/11/13 Account Number is an essential field in the data record.
o Ledger No. / Ledger Folio No.
The scheme covers bulk
payment transactions like payments of interest/ salary/ pension/ commission/
dividend/ refund or bulk collection of utility bills/insurance premium/school
fee/ loan installments, etc., by companies /corporations /government
departments and such other entities.
NCCS / Clearing Houses,
have the discretion to accept the lower volume of transactions. The Sponsor
bank acts as the agent of the user, and uploads the NECS data on to the
web-server of the designated agency/Clearing House (CH) at Mumbai. All files
uploaded on the web server are subjected to final validation for determining
whether the file can be accepted or not. The validation is done with reference
to the User name, User number, Sponsor Bank Branch sort code and other
parameters. When an input file passes through the test validation in the web server, an output report in the form of Data Validation Report (DVR) is printed by the sponsor bank. Once the test DVR is confirmed, the settlement process begins at Clearing House. The Sponsor Bank and the users have to preserve the output data/file for a minimum period of 3 years. Settlement under NECS is final and irrevocable as defined in Sec.23 of the ‘Payment and Settlement Act 2007’. Therefore, withdrawal /modification of file/record are not permitted.
