ECS stands for Electronic Clearing Service, which is an electronic mode of fund transfer from one account to another. Under ECS facility, you can transfer funds electronically from any bank branch to anyone, including firm having an account with any bank in India.
ECS mandate is used on a large scale to clear payments that are repetitive and intermittent in nature. It is used by so many beneficiaries to make payments such as water, loan EMIs, electricity, and other services in periodic investments in insurance premiums and mutual funds and more.
Many institutions also utilize ECS by making a bulk payment towards the distribution of dividends, Salary, pension, interest and more.
The funds that get transferred under ECS are processed under the National Automated Clearing House (NACH). NACH is operated by the National Payments Corporation of India (NPCI).
There are many types of ECSs that you can use in India. It can be used for debit as well credit facility. Have a look:
- ECS Credit – As the name suggests, ECS Credit is used to disburse the amount to a wide range of employees and investors having accounts with bank branches. Under the ECS Credit system, an institution can commence payments towards the pension distribution, dividend, Salary and interest. The best thing is that there are no amount restrictions in transactions made towards individuals.
- ECS Debit –ECS Debit system is used by an institution to raise debits from many accounts being maintained with branches of the bank across multiple locations. It has to be under the jurisdictions of ECS Centre for single credit purpose to the bank account of an institution. ECS Debit method is considered good for tax collections, bill payments, repayment of EMIs or anything needing periodic investments. Just like ECS Credit, even this system does not have any cap on the limit of the amount of individual transactions.
ECS Schemes are of three types such as Local ECS, Regional ECS and National ECS.
Local ECS is operational at 81 centres across the country and is managed by the Reserve Bank of India (RBI).
Region ECS (RECS) is operated at 9 locations in India and is also managed by RBI. On the other hand, National ECS is the centralized system of ECS Credit with its branch only in Mumbai. It assists the coverage of all Core Banking System (CBS) enabled branches located across India. The settlement may take place in Mumbai, but the parties may be in two different locations in India.
What are the benefits of ECS Credit Scheme to the beneficiary?
- The beneficiary need not visit his bank for depositing paper instruments
- He is not bothered about any loss incurred or theft of physical instruments or even the likelihood of fraudulent encashment
- It is cost effective
- The fund is received on the due date
What are the benefits of ECS Credit Scheme to the user?
- Savings on admin machinery and printing costs and other related expenses
- The chances of theft/loss of fraudulent encashment of paper are curtailed
- Efficient payment mode that helps beneficiaries getting credit on the due date
- Cost effective method
What are the benefits of ECS Credit Scheme to the bank?
- Freedom from handling paper and its similar disadvantages, ease of processing and more
- A smooth process of reconciliation for the sponsor banks
- Cost effective system
The concept, types of Electronic Clearing Services (ECSs) operative in India, along with their advantages to everyone concerned is now discussed. You can now make the most of the Electronic Clearing Service for frequent credit and debits in India.