Electronic Clearing Service (ECS)

 ECS is an electronic retail payment system for making bulk and repetitive payments such as payment of dividend, interest, salary, pension, etc., or for collection of amounts pertaining to payments to utility bills like telephone, electricity, house tax, water tax, etc or for loan installments of banks / financial institutions or regular investments of persons from one account to many accounts or vice versa. BANKNET and INFINET facilitate payment from a single account maintained in a bank branch to any number of accounts maintained with the branches of the same or other banks.

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.

 Types:

 There are two types of ECS- ECS (Debit) and ECS (Credit). ECS (Credit) is used for affording credit to large number of beneficiaries by raising a single debit to an account. Institutions which have to make payment to large number of beneficiaries prepare payment data on a magnetic media (CD/Floppy) and submit the same to  their banker along with an authority to the clearing house to debit their  account with the bank and credit accounts of beneficiaries at the destination with their banks.

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.

 ECS Debit Clearing:  

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:

 ECS Credit is used for making bulk payments from a bank account to a large number of beneficiaries by directly crediting their bank accounts. The facility is used for making payment of dividend to investors, interest on deposits, payment of salaries of employees etc. The account of the institution remitting the payment is debited and accounts of beneficiaries’ with banks are credited through the clearing system.

The company or entity making payment has to have the details of bank accounts of individual beneficiaries. The company or entity obtains a mandate or letter of authority from the beneficiary containing all relevant details e.g., bank, branch, account number, MICR code of the destination bank branch etc.
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.

 Advantages: ECS (Credit) is advantageous to the service providers, customers and to the bank.

(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 launched ‘National Electronic Clearing Service (NECS)’ with effect from 29.09.2008. The system facilitates centralised processing for repetitive and bulk payment instructions.

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 India. This facilitates sponsor banks (the bank who acts as the agent of the user i.e. companies/corporations/Government Departments or any other entity using NECS services) in submitting ECS files centrally at Mumbai.

 Types of NECS:

 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:

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.