National Automated Clearing House (NACH) & Electronic Clearance Service (ECS)
National Automated Clearing House (NACH) is a web based solution implemented by National Payments Corporation of India (NPCI) for addressing recurring, interbank, high volume electronic transactions. It is an improved and much efficient version of Electronic Clearance Service (ECS). NACH plays a key role in the Indian payment services.
What is Electronic Clearance Service (ECS)?
Electronic Clearance Service (ECS) scheme was a method that was used In India, prior to launch of NACH for effecting bulk payment transactions of periodic nature to bank accounts. The ECS scheme obviated issuance and handling of paper instruments for periodic payments such as dividends, interests, pension, subsidies etc. Earlier corporate used to issue paper instruments to the beneficiaries, which they had to present to their bank for collection into accounts.
Under the ECS credit method, the transactions moved from a single user source like Banks, Companies, Corporations or Government Departments to a large number of accounts of beneficiaries with different banks. ECS debit was used for collection of EMIs / premium/ instalments etc from a large number of accounts towards a single source like insurance companies, lenders etc. ECS played a key role in popularising mutual fund schemes and SIPs among investors.
ECS transactions could be carried out only within members of each ECS clearing house, with different rules and procedures for different centres. The settlement took longer period of 3-4 days for settlements. National Automated Clearing House was launched as a better substitute for ECS with easiness in operations and uniform practices. ECS got subsumed with NACH over a period.
What are the advantages of National Automated Clearing House (NACH)?
NACH takes care of clearing and settlement, including returns, on the same day among the members at nominal charges. NACH supports banks, financial institutions, corporate and government to handle bulk volume of transactions towards distribution of subsidies, dividends, interest, salary, pension etc. NACH supports both credit and debit transactions like ECS. NACH covers the entire core banking enabled bank branches spread across the country irrespective of the location of the branch.
NACH system supports Financial Inclusion measures facilitating Aadhaar based transactions. NACH’s Aadhaar Payment Bridge (APB) System, developed by NPCI has supported in making the Direct Benefit Transfer (DBT) scheme a grand success in India.
Process for customers for availing credit/ debit under National Automated Clearing House (NACH)
In order to avail the services under NACH, customer should register their mandate with their bank directly or through the beneficiary corporate/ institution to whom payment is to be made. Detail such as debit source, amount, account number, branch code, MICR etc are stored in NACH system. On due date the NACH system triggers the credit or debit transaction based on the mandate.
NACH Credit transactions
NACH Credit is an electronic payment service used by an institution or corporate for passing on credit to the bank account of a large number of beneficiaries. This simplifies the payment of dividend, interest, salary, pension etc. by raising a single debit to the bank account of the originator institution. NACH Credit facility functions on all days except bank holidays and RTGS holidays declared by Reserve Bank of India from time to time. NACH credit ensures end to end monitoring, customised reports, reduced operational cost
NACH Debit transactions
NACH Debit facility is an efficient mandate based debit services that can be utilised for collection of amounts from a large number of accounts. Here, the amount collected from multiple accounts is passed on to a single account of the beneficiary. This facility is used by insurance agencies for collection of periodical premium, telephone service providers for collection of monthly charges, lenders for collection of EMI etc.
For NACH debit transaction, each mandate issued by the account holder needs to be accepted/authorized by the debtor bank. A beneficiary can initiate a debit transaction only after acceptance of mandate by the bank. Each mandate is allotted a Unique Mandate Reference Number (UMRN) for tracking.
