The Electronic Clearing Service (ECS) is an electronic mode of payment for transactions that can be used for making bulk payments or receipts.
This facility is used by by institutions for making bulk payment of amounts towards distribution of dividend, interest, salary, pension, etc. or for bulk collection of amounts towards telephone / electricity /water dues, cess / tax collections, loan installment repayments, periodic investments in mutual funds, insurance premium etc.
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Essentially, ECS facilitates bulk transfer of monies from one bank account to many bank accounts or vice versa.
There are two variants of ECS - ECS Credit and ECS Debit.
This is used by institution for affording credit to a large number of beneficiaries (for instance, employees, investors etc.) having accounts with bank branches at various locations by raising a single debit to the bank account of the user institution.
ECS Credit enables payment of amounts towards distribution of dividend, interest, salary, pension, etc., of the user institution.
ECS Debit is used by an 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 for single credit to the bank account of the user institution.
ECS Debit is useful for payment of telephone / electricity / water bills, cess / tax collections, loan installment repayments, 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.
While, ECS can be used to transfer funds to NRE and NRO accounts in the country. This, however, is subject to the adherence to the provisions of the Foreign Exchange Management Act, 2000 (FEMA) and Wire Transfer Guidelines.
Advantages of ECS Debit to customers:
- ECS Debit mandates will take care of automatic debit to customer accounts on the due dates without customers having to visit bank branches / collection centres of utility service providers etc.
- Customers need not keep track of due date for payments.
- The debits to customer accounts would be monitored by the ECS Users, and the customers alerted accordingly.
- Cost effective.
Availability of ECS in the country:
Depending on the geographic location of the branches covered, there are three main categories of ECS systems - local ECS, Regional ECS and National ECS. These systems are managed by RBI or by designated commercial banks. NACH (National Automated Clearing House) is also one of the forms of ECS system operated by NPCI (National Payments Corporation of India).
It operates in 81 centres/locations across the country. In each of these ECS centres, the coverage of branches is limited to the geographic coverage of the clearinghouse, generally covering a city and/or cities and satellite suburbs adjacent to the city.
It operates in 9 centres/locations in different parts of the country. RECS facilitates the coverage of all branches with basic banking services in a state or group of states and can be used by institutions wishing to reach beneficiaries within the state/group of states. The system takes advantage of the basic banking system of banks. As a result, even if interbank settlement takes place centrally in one location in the state, actual plan clients may have their accounts in different bank branches across the length and breadth of the state/group of States.
This is the centralized version of ECS Credit that was started in October 2008. The program operates in Mumbai and facilitates coverage of all branches activated for basic banking located anywhere in the world. This system also takes advantage of the basic banking system of banks. Therefore, even if interbank settlement takes place centrally in one location in Mumbai, actual clients of the scheme may have their accounts in different bank branches across the length and breadth of the country. Banks are free to add any of their branches compatible with basic banking services in NECS, regardless of their location. Details of the NECS program are available on the Reserve Bank of India website.
The Reserve Bank of India has deregulated the charges to be levied by sponsor banks from user institutions. The sponsor banks are, however, required to disclose the charges in a transparent manner.