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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–Means- transactions occur repetitively and after a fixed time interval.
But ECS lacks certain things like it takes around 30 days for its activation after submitting the required documents. To overcome the problems faced by ECS, National Payments Corporation of India (NPCI) came with another system called National Automated Clearing House (NACH).
NACH launched with an aim -to consolidate multiple ECS systems running across the country and provides a framework for the harmonization of standard & practices and removes local barriers/inhibitors.
NACH system is used by institutions for making bulk payment of amounts or for bulk collection of amounts.
Bulk payment of amounts– automatic paying of interest, salary, pension etc.
Bulk collection of amounts–automatic paying of telephone / electricity / water bills, cess / tax collections, loan installment repayments etc.
How NACH is different from its predecessor ECS?
♦ECS was controlled by RBI , but NACH — managed by NPCI.
♦ECS was regional payment system, while NACH — one national payment system.
♦ECS available at around 89 centers in the country[15 cntrs from RBI] but NACH consolidates all bank branches around 82000 plus bank branches across India.
♦ECS presentation and settlement is spread over 3-4 day period, NACH -same day presentation and settlement, including returns processing.
♦ECS, Disputes were related to Destination Bank and Sponsor Bank , NACH- Special Dispute Management System- electronic platform to raise and resolve issues.
Benefits of NACH
Benefits of NACH debit are as follows:
- Standardization and digitization of mandates allowing complete audit trail of the Mandate lifecycle.
- Simplification of the mandate acceptance and recording process.
- Will result in reduced operational cost for the banks and its clients.
- Will result in higher revenues for the banks and its clients as the scope of services expand pan India – beyond the 90 clearing centers.
- Unique identifier number allocated to each mandate (UMRN – Unique Mandate Reference Number).
- Secure web access for file upload/download, dissuading the concept of regional NCC/Clearing House submissions.
- Mandates can be processed by the member for any branch across the country.
- Allows corporate clients to directly upload files for approval (DCA).
- Functions on International Messaging Standard – ISO 20022.
- Minimal time taken to activate the Mandate – same day processing possible.
- Corporates get to have direct access to the NACH systems, making it easier for them to get access to status of transaction/mandate without delay.
- Reduction of the uploading work to the sponsor banks, since the file upload will be done by the corporates themselves
