The Reserve Bank of India offers the Electronic Clearing System (ECS) for faster payments and collections. ECS is an electronic mode of payment / receipt for transactions that are repetitive and periodic in nature. By repetitive and periodic, it is meant that the transactions occur repetitively and after a fixed time interval.ECS is used by institutions for making bulk payment of amounts or for bulk collection of
amounts. Examples for bulk payment of amounts include paying of interest, salary, pension, etc. Examples for bulk collection of amounts includes telephone / electricity / water bills, cess / tax collections, loan installment repayments, periodic investments in mutual funds, insurance premium, etc.
Variants of ECS:
We studied above that ECS is used for either making bulk payment of amounts or for bulk collection of amounts. Based on that there are two variants:
- ECS Credit: ECS Credit is for making bulk payment of amounts. Under this scheme, a single account is debited and then multiple accounts are credited. Example: A company has 50 employees and at the start of month it gives salary to all the employees so instead of crediting each account separately, the company can use the ECS Credit Scheme.
- ECS Debit: ECS Debit is for bulk collection of amounts. Under this scheme, multiple accounts are debited and then a single account is credited. Example: Many people go for insurance policies and they have allowed the payment of their premiums from their account. Now it is possible that on a single day, many customer accounts are to be debited to have the premium from them. So in the case where multiple accounts are going to be debited and then a single account is to be credited, ECS Debit scheme can be used.
ECS scheme is distributed based on the geographical location of branches as:
- Local ECS – this is operating at 81 centres / locations across the country generally covering one city and/or satellite towns and suburbs adjoining the city.
- Regional ECS – this is operating at 9 centres / locations at various parts of the country and covers a State or group of States and can be used by institutions desirous of reaching beneficiaries within the State / group of States.
- National ECS – this is the centralized version of ECS Credit which was launched in October 2008. The Scheme is operated at Mumbai and facilitates the coverage of all core-banking enabled branches located anywhere in the country.
So if an institution opted for Local ECS service, it can credit to or debit from the same accounts in same geographical location. The institutional User has to register with an ECS Centre.
The RBI has deregulated the charges to be levied by sponsor banks from user institutions. However, in case banks apply any charges they should keep it transparent.
Some of the benefits of ECS scheme:
- ECS Credit and Debit schemes can be initiated by institutions who apply for it.
- There is no need to go to bank branches/ collection centres after all formalities are completed while applying.
- Freedom from paper handling as all credits and debits are done electronically.
- So it avoids the loss and fraudulent of papers in transit.
- Cost effective.
- Customers need not keep track of due date for payments.
- The Transactions is processed under National Automated Clearing House(NACH) and operated by the National Payments Corporation of India (NPCI).
- NACH replaced ECS in 2016, with the aim to consolidate multiple Multiple ECS system across the country. NACH is also faster and more efficient than ECS.