What is Electronic Clearing Service (ECS) ?
ECS is a mode of electronic funds transfer for transactions that are repetitive and periodic in nature. ECS is used 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, etc. Essentially, ECS facilitates bulk transfer of monies from one bank account to many bank accounts or vice versa using the services of a ECS Centre at a ECS location.
What are the variants of ECS? In what way are they different from each other ?
Primarily, there are two variants of ECS - ECS Credit and ECS Debit.
ECS Credit is used for affording credit to a large number of beneficiaries having accounts with bank branches at various locations within the jurisdiction of a ECS Centre by raising a single debit to an account of a bank (that maintains the 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 for raising debits to a large number of accounts maintained with bank branches at various locations within the jurisdiction of a ECS Centre for single credit to an account of a bank (that maintains the account of the user institution). ECS Debit is useful for payment of telephone / electricity / water bills, cess / tax collections, loan instalment repayments, periodic investments in mutual funds, etc., that are periodic or repetitive in nature and payable to the user institution.
Who can initiate a ECS Credit transaction ?
ECS Credit payments can be initiated by any institution (called ECS Credit User) who has to make bulk or repetitive payments to a number of beneficiaries. The institutional User has to first register with a ECS Centre. The User has to also obtain the consent of beneficiaries and get their bank account particulars prior to participation in the ECS Credit scheme.
ECS Credit payments can be put through by the ECS User only through his bank (known as the Sponsor bank). ECS Credits are afforded to the beneficiary account holders (known as destination account holders) through the beneficiary account holders' bank (known as the destination bank). The beneficiary account holders are required to give mandates to the user institutions to afford credit to their bank accounts through the ECS Credit mechanism.
How does the ECS Credit Scheme work ?
The user intending to effect payments through ECS Credit has to submit details of the beneficiaries (like name, bank / branch / account number of the beneficiary, MICR code of the destination bank branch, etc.), date on which credit is to be afforded to the beneficiaries, etc., in a specified format (called the input file) through its sponsor bank to one of the approved ECS Centres.
The bank managing the ECS Centre then debits the account of the sponsor bank on the scheduled day and credits the accounts of the destination banks, for onward credit to the accounts of the ultimate beneficiaries with the destination bank branches.
What is a MICR Code ?
MICR is an acronym for Magnetic Ink Character Recognition. The MICR Code is a numeric code that uniquely identifies a bank-branch participating in the ECS Credit scheme. This is a 9 digit code to identify the location of the bank branch; the first 3 characters represent the city, the next 3 the bank and the last 3 the branch. The MICR Code allotted to a bank branch is printed on the MICR band of cheque leaves issued by bank branches.
How does a beneficiary participate in ECS Credit Scheme ?
The beneficiary has to furnish a mandate to the user institution giving consent to avail the ECS Credit facility. The mandate contains details of his bank branch, account particulars and authorizes the user institution to afford credit to his account with the destination bank branch.
Is it necessary for user institutions to collect the mandates from beneficiaries ?
Yes. A model mandate form has been prescribed for the purpose (available at the location https://www.pnbindia.in). The securities market regulator (SEBI) has also issued guidelines to investors to furnish their bank account details in the share applications for printing the same on the physical interest / dividend warrants. Therefore, user institutions should not have difficulty in collecting the bank account particulars and mandates from beneficiaries. Payment processing by destination banks becomes smooth and easy once a database is prepared, maintained and updated by the user institutions.
Is there scope for the beneficiary to alter the mandate under the ECS Credit Scheme ?
Yes. In case the information / account particulars contained in the mandate undergoes any change, the beneficiary has to notify the user institution with a request to carry out the requisite changes in order to continue to receive credits under the scheme. In case the account particulars contained in the input file do not match with the particulars as available at the destination bank branch for any reason whatsoever, the destination bank branches would return the credit (through their pooling centre known as the Service Branch) to the sponsor bank (for onward credit to the user institution) through the ECS Centre.
Will beneficiaries be intimated of credits afforded to their account under the ECS Credit Scheme ?
It is the responsibility of the user institution to communicate to the beneficiary the details of credit that is being afforded to his account, indicating the proposed date of credit, amount and relative particulars of the payment. Destination banks have been advised to ensure that the pass books / statements given to the beneficiary account holders reflect particulars of the transaction / credit provided by the ECS user institutions. The beneficiaries can match the entries with the advice earlier received by them from the user institutions. Many banks also give mobile alerts/messages to customers post credits of funds to such accounts.
What are the advantages of the ECS Credit Scheme to the beneficiary ?
ECS Credit offers many advantages to the beneficiary –
The beneficiary need not visit his bank for depositing the paper instruments, which he would have otherwise received had he not opted for ECS Credit.
The beneficiary need not be apprehensive of loss/theft of physical instruments or the likelihood of fraudulent encashment thereof.
How does the ECS Credit Scheme benefit user institutions ?
User institutions enjoy many advantages as well. For instance,
Savings on administrative machinery for printing, dispatch and reconciliation of paper instruments that would have been used had beneficiaries not opted for ECS Credit.
Avoid chances of loss/theft of instruments in transit, likelihood of fraudulent encashment of paper instruments, etc.
Efficient payment mode ensuring that the beneficiaries' get credit on a designated date.
Are there any advantages of the ECS Credit Scheme to the banking system ?
Yes, the banking system too benefits from ECS Credit such as –
Freedom from paper handling and the resultant advantages of handling, presenting and monitoring paper instruments presented in clearing, had beneficiaries (having accounts with the destination bank branches) not opted for ECS Credit.
Ease of processing and return for the destination bank branches.
Smooth process of reconciliation for the sponsor banks.
Is there any limit on the value of individual transactions in ECS Credit ?
No. There is no value limit on the amount of individual transactions.
What are the processing / service charges levied under ECS Credit ?
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. No processing charges are levied by the ECS Centres; the same has been waived till March 31, 2010. Destination bank branches have been directed to afford ECS Credit free of charge to the beneficiary account holders.
Who can initiate a ECS Debit transaction ?
ECS Debit transaction can be initiated by any institution (called ECS Debit User) who has to receive / collect amounts towards telephone / electricity / water dues, cess / tax collections, loan instalment repayments, periodic investments in mutual funds, etc. It is a Scheme under which an account holder with a bank branch can authorise an ECS User to recover an amount at a prescribed frequency by raising a debit to his bank account.
The institutional User has to first register with a ECS Centre. The institution has to also obtain the authorisation from its customers and their bank account particulars prior to participation in the ECS Debit scheme. The user institutions collect the details by way of an authorisation (known as mandate) from the customer with due acknowledgement by the customer's bank branch. A copy of the mandate should be available on record with the destination bank branch where the customer has a bank account.
How does the ECS Debit Scheme work ?
The ECS Debit User intending to collect receivables through ECS Debit has to submit details of the customers (like name, bank / branch / account number of the customer, MICR code of the destination bank branch, etc.), date on which the customer's account is to be debited, etc., in a specified format (called the input file) through its sponsor bank to the ECS Centre.
The bank managing the ECS Centre then passes on the debits to the destination banks for onward debit to the customer's account with the destination bank branch and credits the sponsor bank's account for onward credit to the User institution. Destination bank branches will treat the electronic instructions received from the ECS Centre on par with the physical cheques and accordingly debit the customer accounts maintained with them. All the unprocessed debits are returned to the sponsor bank (for onward return to the user institution) within the time frame specified.
What are the advantages of ECS Debit Scheme to the customers ?
The advantages of ECS Debit to customers are many and include,
- ECS Debit mandates will take care of automatic debit to customer accounts on the due dates without customers having to visit bank branches.
- Customers need not keep track of due date for payments.
- The debits to customer accounts would be monitored by the ECS Users.
- Cost effective.
How does the ECS Debit Scheme benefit user institutions ?
User institutions enjoy many benefits from the ECS Debit Scheme like,
- Savings on administrative machinery for collecting the cheques from customers, presenting in clearing, monitoring their realisation and reconciliation.
- Better cash management because of realisation / recovery of dues on due dates promptly and efficiently.
- Avoids chances of loss/theft of instruments in transit, likelihood of fraudulent access to the paper instruments and encashment thereof.
- Realisation of payments on a uniform date instead of fragmented receipts spread over many days.
- Cost effective.
What are the advantages of ECS Debit Scheme to the banking system ?
The banking system has many benefits from ECS Debit such as –
- Freedom from paper handling and the resultant dis-advantages / delays of handling, receiving and monitoring paper instruments presented in clearing, had customers (having accounts with the destination bank branches) not opted for ECS Debit.
- Ease of processing and return for the destination bank branches. Destination bank branches simply need to verify the mandate particulars relating to their customers. All they have to do is match the account particulars like name, account number, etc., and debit the customer accounts. Wherever the details do not match, the instructions are just to be returned, as per the procedure.
- Smooth process of reconciliation for the sponsor banks.
- Cost effective.
Can the mandate once given by a customer be withdrawn or stopped ?
Yes. Any mandate in ECS Debit is on par with a cheque issued by a customer. The customer has to maintain adequate funds in his account with the destination bank branch to ensure the ECS Debit instructions are honoured when presented. In case of any need to withdraw or stop a mandate, the customer has to give prior notice to the ECS user institution well in time, so as to ensure that the input files submitted by the user do not continue to include the ECS Debit details in respect of the mandates withdrawn or stopped by customers. The process flow to be followed for withdrawing / stopping mandates is detailed in ECS Debit Procedural Guidelines.
Can a customer stipulate a ceiling on the amount of debit, purpose or validity period of the mandate under the ECS Debit Scheme ?
Yes. It is left to the choice of the individual customer and the ECS user to decide these aspects. The mandate can contain a ceiling on the maximum amount of debit; it can also specify the purpose of debit, as also a validity period.
Is there any limit on the value of Individual transactions in ECS Debit ?
No. There is no value limit on the amount of individual transactions that can be collected by ECS Debit.
What are the processing / service charges levied under ECS Debit ?
No processing charges are levied by the ECS Centres; the same has been waived till March 31, 2010. Bank branches do not generally levy processing / service charges for debiting the accounts of customers maintained with them.