ECS or Electronic Clearing Service was launched by the RBI to facilitate bulk fund transfer from one bank to another. With the help of this facility, banks are able to debit loan EMIs automatically on a predetermined date from accounts. The entire process is managed by a clearing house called NACH or National Automated Clearing House.
An ECS mandate also gives the authority to the clearing house to credit the EMI to your or the lender’s loan account. The ECS mandate contains crucial information such as:
Your bank branch details
Your bank account number from which EMI has to be debited
The date of EMI debit
Total amount to be debited
When you avail a credit facility, you have to sign an ECS mandate. The ECS mandate allows NACH to debit the EMI from your account. Whenever a debit/credit happens, you can receive the information on your registered mobile number.
Here are a few advantages of using the ECS mandate:
Avoids delay in EMI payments
Minimises paper wastage
Eliminates the need to track your payment due dates
Avoids the need to visit the branch for providing debit instructions
Involves a cost-effective process as it saves time and energy
ECS enables bulk transfer of money from one account to numerous other accounts simultaneously.
For any sort of bulk payment such as interest, salary, dividend, pension or recurring monthly bills, ECS is used to make payments. It's also via ECS that payments for mutual funds or insurance premiums can get auto-debited after a pre-specified timeframe.
ECS is mainly of two types, depending on the mode of transfer:
On the basis of geographic location of bank branches, RBI has further subdivided ECS as:
ECS offers benefits to both organizations and individuals:
As per RBI directives, there's no fee charged from customers in ECS transactions. However, there's a nominal charge concerning different banks. Originating bank (the bank from which the amount is deducted) needs to pay Rs. 0.25 for each transaction to the clearing house and Rs. 0.50 to the destination bank. Banks do not levy any additional ECS charges on the customers.
In order to set up an ECS mandate, you need to contact your bank and follow the following steps:
When you apply for a loan or a credit card, the bank requires you to sign the ECS mandate form, which is an authorization given to the bank for the deduction of a particular amount each month from your bank account. The timeline of debit is also mentioned in the ECS mandate. The customer can also revoke the mandate and cancel ECS whenever he wants. In short, ECS mandate means allowing and authorizing the bank and the clearing house to make a specified monthly deduction at a set date.
There's ample flexibility in ECS and it can be cancelled anytime the user wants, irrespective of the reason. The bank as well as the payment beneficiary need to be informed well in advance through a written application before you terminate ECS. The application needs to be submitted at least a week before the EMI debit date. There's a dedicated ECS cancellation form that has to be duly filled and submitted by you to the bank. Make sure to double check whether or not the ECS mandate has been cancelled after stipulated time by checking your bank transaction details.
More About Payments & Other Credit Cards
Electronic clearing service is a quick, reliable, safe and efficient way to transfer money from one bank account to another. It's used both for credit as well as debit. For instance, salaries, pensions, interest etc are all transferred in bulk via the ECS. Also, the auto-debit of EMI or any recurring loans or other utility bills at a particular date takes place through ECS. Whenever an amount is credited or debited through ECS, the bank sends a notification to the account holder.
There's usually no limit on the amount that can be transferred or disbursed via the ECS, however, in case of ECS debit, individual users can specify an ECS limit beyond which no deduction would be made. An ECS limit is the maximum pre-specified amount that can be debited from the bank account.
ECS mandate form is a document that grants customer's authentication to the bank or the financial organization to debit a particular amount each month from his account in lieu of loan or EMI.
NACH or the National Automated clearing House is a clearing house operated by the National Payment Corporation of India. While both NACH and ECS are used for recurring payment transfers, NACH is faster, robust and used for bigger transactions. In ECS, it takes between 3-4 working days for transactions to process, while in NACH they are processed the same day. Due to enhanced security features, advanced dispute mechanisms and speed, a lot of big organizations are opting for NACH, however, ECS is more extensive in its reach and connection.