Electronic Clearing Service or ECS is an electronic means of transaction of funds that are concurrent and sporadic in nature. Various institutes use ECS to make bulk payments or accept bulk receipts. ECS is used in payment of pension, salary, interest, dividends, etc. Institutes also use them to collect insurance premiums, mutual funds, loan instalment repayments, tax collection, electricity bill payment, water bill payment, telephone charges, and so on. However, the bank services see the maximum usage of ECS, with facilities such as money transfer to inter bank or intra banks.
Magnetic Ink Character Recognition (MICR) Code is a nine digit numeric code that provides a unique identity to the participant bank branch. The code helps in identifying the branch’s location. Here the city is represented by the first three characters. The subsequent three characters identify the bank while the last three identify the branch. The MICR codes could be found on the bank branch issued cheques.
Availability of ECS Scheme
The ECS Scheme runs under three general classifications. They comprise of National ECS, Regional ECS and Local ECS. The RBI in collaboration with designated commercial banks oversees its operations. The National Automated Clearing House (NACH) also come under ECS and is functioned by the National Payments Corporation of India (NPCI).
The Local ECS operates around 81 centres in the nation. There is a geographical restriction on the branch coverage of the clearing house. Hence, each ECS covers just a single city, along with adjoining suburbs.
The Regional ECS operates at nine centres in the nation. It is based on the core banking system of financial institutes. It supports the handling of entire banking-enabled branches of a state or groups of states. Any institute who wants to reach a beneficiary within that state or groups of states could easily do so with the RECS function. Hence, while an inter-bank settlement is held at a single location, its beneficiaries could be spread out at different geographical locations inside the state.
The National ECS was established in 2008 in Mumbai and is a centralized version of ECS Credit. Its purpose is to support all banking-enabled branches of different banks supporting ECS services in different parts of the country. Hence, while the inter-bank settlement occurs in Mumbai, the beneficiaries could be located at any part of the country.
Variants- ECS Debit & ECS Credit
Electronic Clearing Service has two variants- ECS Debit and ECS Credit.
Different institutes use ECS Debit to raise debits for great number of accounts (such as investors in mutual funds and utility services consumers) that are sustained by different branches of a bank. All the branches fall under an ECS centre for a particular credit. This debt is beneficial in paying different types of bills and payments that are recurring in nature. To be eligible for this debit system the user must initially register itself at the ECS Centre. Secondly, the user must also get an authorization from the consumers to receive debt from their accounts. It is the responsibility of the beneficiary’s bank to verify the mandate. The destination bank must keep a copy of this mandate. The institute should follow certain procedures to gather receivables via ECS Debit. It has to fill up the details of the consumers, along with the date of debit from the consumers’ account in an input file. The ECS Centre managing bank then passes on the debits to the destination bank. The consumer bank is then debited and this amount goes to the institute. Any unsuccessful debit is sent back to the consumer account via the sponsor bank. The ECS Debit is free of any value limit on individual transaction amounts. Moreover, there are very nominal service charges charged under this debit system.
Benefits of ECS Debit to the Customers
- Cost effective.
- Automatic fund transfers on scheduled dates save the user from visiting the financial institute.
- Consumers are saved from remembering the due date of payment.
- The ECS users are always alerted on any new transaction; hence, any fraud is immediately apparent.
Advantages of ECS Debit to User Institution
- Cost saving.
- All debits collected on a single date.
- Theft and loss proof.
- Enhanced management of cash due to efficient and prompt recovery dates.
- Cost saving on administration
Advantages of ECS Debit to Banking System
- Cost saving.
- Easy procedure of reconciliation of sponsor banks
- Smooth processing and return for destination branches of banks with very little manual involvement.
- Paper proof and ease of maintenance.
Institutes use ECS Credit service to pay to a great number of beneficiaries who have their accounts in different branches inside the ECS centre jurisdiction by raising a solitary debt to the bank account. Any institution could initiate it as per its requirements. However, to use the ECS Credit system the institution first needs to register with an ECS Centre. Secondly, the institution needs to get consents from the beneficiaries and have their bank account details before initiating the program. These beneficiaries are called destination account holders while their banks are called destination banks. The bank of the institute that wants to initiate the payment is called Sponsor bank. The ECS Credit is free of any value limit on individual transaction amounts. Moreover, there are very nominal service charges charged under this credit system.
Beneficiary Advantage under ECS Credit Scheme
There are numerous benefits of participating in this scheme.
- Time Saving
- Cost Saving
- Theft and Forgery Proof
- On Time Payment
Advantage to User Institutions under ECS Credit Scheme
- Cost Saving
- Effective Mode of Payment
- Theft Proof and Loss Proof
- Savings on Administrative Machinery
Advantages to Banking System under ECS Credit Scheme
Banks too gain several advantages which are listed as under
- Cost Saving
- Easy Procedure of Settlement for Sponsor Banks
- Paperless Banking